The Relationship between Governance and Economic Development: An Empirical Analysis from 1996 to 2019 for Albania

Year 2020, Volume: 19 , 31 - 40, 31.12.2020

Teuta Xhındı Olgerta Idrızı

Abstract

There is an on-going debate on the effect of governance on the economic development of a country. In an effort to shed some light on this matter, this article aims to identify the relationship between good governance and economic growth in Albania, considering that good governance might create the right habitat for economic growth.The values for the good governance index are calculated using the Principal Component Analysis and the values for the World Governance Indicators – WGI for Albania, taken from the World Bank database for 1996-2019 time periods. This period coincides with a series of important transformations undertaken by governments in Albania after the fall of the communist regime in 1990. The methods used are the regression analysis and the Granger Causality test. Main results: By analyzing the 1996-2019 time period data, we conclude that Good Governance is not a statistically significant factor for economic development in Albania and the Granger causality test indicates that neither of variables causes the other.

Keywords

Good Governance, economic growth, indicators, principal component analysis, Granger causality

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