Examining the impact of foreign direct investment on sustainable economic growth: A longitudinal perspective

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Abstract

This study examines the impact of foreign direct investment (FDI) on economic growth over the period 2000–2022, focusing on Albania as a case of a transition economy integrating into the global market. Using annual data and employing time series econometric techniques, including the vector error correction model (VECM), the paper explores both the short-run and long-run dynamics between FDI and gross domestic product (GDP) per capita. The findings reveal that FDI has a statistically significant and positive impact on long-term economic growth, while the contribution of domestic investment, though positive, is comparatively limited. This research contributes to existing literature by offering updated empirical evidence over a two-decade period marked by economic liberalization and European integration efforts, an area previously underexplored in transition economies. Additionally, the study highlights the importance of sectoral FDI inflows, particularly in energy and tourism, and their strategic role in shaping sustainable economic growth. By identifying FDI as a more potent driver of growth than domestic investment, the study offers practical insights for policymakers aiming to improve the investment climate and attract quality foreign capital. These findings provide a meaningful contribution to both regional and broader discussions on the role of FDI in sustainable development.

Keywords: Albania, FDI, Economic Growth, Employment, Activities

Authors’ individual contribution: Conceptualization — O.M. and M.P.; Methodology — O.M., M.P., and M.H.; Software — O.M. and M.H.; Validation — O.M., M.P., and M.H.; Formal Analysis — O.M.; Investigation — O.M. and M.P.; Resources — M.P.; Data Curation — O.M. and M.H.; Writing — Original Draft — O.M. and M.P.; Writing — Review & Editing — O.M., M.P., and M.H.; Visualization — M.H.; Supervision — O.M.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: F21, O11, O47

Received: 03.06.2025
Revised: 25.06.2025; 12.08.2025
Accepted: 25.08.2025
Published online: 27.08.2025

How to cite this paper: Muharremi, O., Petanaj, M., & Hoxhaj, M. (2025). Examining the impact of foreign direct investment on sustainable economic growth: A longitudinal perspective. Corporate Governance and Sustainability Review, 9(3), 155–169. https://doi.org/10.22495/cgsrv9i3p13