AGORA International Journal of Economical Sciences, http://univagora.ro/jour/index.php/aijes ISSN 2067-3310, E-ISSN 2067-7669 Vol. 19, No. 1 (2025), pp. 87-100 87 INCLUSIVE, INNOVATIVE, AND RESILIENT: SHAPING ALBANIA'S FUTURE GROWTH FRAMEWORK I.DINOSHI, A. LEKA Irsida Dinoshi1, Ahmet Leka2 1Faculty of Economy, Law and Social Sciences, University College of Business, in Tirana, Albania. https://orcid.org/0009-0007-9199-2672; e-mail: idinoshi@kub.edu.al 2Ahmet Leka, Faculty of Defense and Security, Armed Forces Academy in Tirana, Albania. e-mail: ahmet.leka@aaf.mil.al Abstract: As Albania's economy continues to evolve, traditional measures like Gross Domestic Product (GDP) fail to provide a complete picture of its economic well-being and sustainability. This paper explores the need for new tools to assess and guide Albania’s economic policies, shifting the focus from simple growth metrics to a more comprehensive evaluation of economic quality. By examining key indicators such as human capital, infrastructure development, environmental sustainability, and technological innovation, this study highlights how Albania’s GDP growth has not always translated into high-quality, inclusive, or resilient development. Despite positive growth trends, challenges remain in areas like education, infrastructure, and green energy adoption. Our findings underscore the importance of balancing economic growth with long-term objectives such as reducing inequality, fostering innovation, and promoting sustainability. This paper advocates for a more integrated, multidimensional approach to economic policy, one that prioritizes investments in human capital, infrastructure, and renewable energy to ensure that Albania’s growth is both inclusive and sustainable. By adopting this broader growth framework, Albania can align its economic trajectory with global standards of resilience and prosperity, ensuring that the benefits of growth reach all segments of society. Keywords: GDP, Human Development, Sustainable Development, Technological Innovation 1. INTRODUCTION Over the past few years, Albania has enjoyed constant economic growth, as mirrored in an average yearly increase of real Gross Domestic Product (GDP) of about 3–4%. Though figures like these are commonly referred to as indicators of progress, they present merely a limited picture of the nation's development trajectory. Conventional measures of growth, such as GDP, concentrate primarily on the production aspect of the economy and not on the key aspects of the quality, inclusiveness, and sustainability of growth attained. As Albania is working towards being more integrated into the European Union and working to meet international standards of development, it is becoming increasingly necessary to rethink the methodologies employed for evaluation and working toward economic performance. GDP does not measure inequality in the distribution of wealth, environmental degradation, or the strength of institutional and social capital. It does not reveal if economic growth means more education, better public health, or access to digital services. In Albania's https://orcid.org/0009-0007-9199-2672 mailto:idinoshi@kub.edu.al mailto:ahmet.leka@aaf.mil.al INCLUSIVE, INNOVATIVE, AND RESILIENT: SHAPING ALBANIA'S FUTURE GROWTH FRAMEWORK 88 case, growth has not always been accompanied by reduced inequality, a robust ecosystem for innovation, or environmental resilience. For instance, despite favorable GDP growth, the country suffers from high youth unemployment, brain drain of skilled professionals, underdevelopment of infrastructure, and vulnerability to climate change due to its overdependence on hydropower. Internationally, there is increasing acknowledgment that GDP must be supplemented as a measure of national advancement. The United Nations, the Organization for Economic Cooperation and Development (OECD), and the European Union are among the organizations that have developed frameworks that promote more inclusive and multidimensional assessments of well-being. The Sustainable Development Goals (SDGs) of the UN, the Better Life Index of the OECD, and the European Pillar of Social Rights all emphasize the requirement for inclusive, innovative, and sustainable development. This study takes the existing global discussion as a point of departure and puts forward a novel development agenda for the Albanian situation. It argues that Albania must embrace a more inclusive development paradigm—one that emphasizes inclusiveness, innovation, and adaptability as prime movers of national advancement. By prioritizing human capital development, infrastructure improvement, environmental sustainability, and technological innovation, Albania can make economic growth inclusive and align it with strategic long-term objectives. The text is organized in different sections explaining all the study research work. First it presents the academic and policy literature on alternative indicators of development. And then explains the methodology and the selection criteria of the main indicators used in the analysis. Authors have examined and analyzed the recent economic performance of Albania across different dimensions, such as education, infrastructure, sustainability, and innovation. In the end presents a conceptual model of inclusive and resilient growth, and provides policy suggestions for the application of this model. The last section emphasizes the necessity to embrace a wider, multidimensional perspective to economic development in Albania. 2. LITERATURE REVIEW 2.1. The Limits of GDP as a Measure of Development Since its first implementation in the 1930s, Gross Domestic Product (GDP) has been utilized as the main indicator to ascertain the economic performance of a country. Although it presents an informative snapshot of levels of consumption and production, economists and policy-makers have increasingly been vocal about its shortcomings. Kuznets (1934), considered one of the fathers of national income accounting, cautioned against misusing GDP growth as a measure of well-being. He felt that "the welfare of a nation can scarcely be inferred from a measure of national income" (p. 7). The GDP measure does not account for factors such as inequality, environmental damage, or non-market contributions, including unpaid care work. It does not provide information on the sustainability or the quality of economic growth. Other economic analyses and assessments have been expressed by renowned economists in the field of economics that GDP as a macroeconomic indicator has shortcomings in measuring the economic performance and well-being of a country. Irsida DINOSHI, Ahmet LEKA 89 Albania’s future development cannot rely solely on GDP growth, but must include inclusive policies, innovative capabilities, and resilience against external and internal shocks. The economics expert Professor Civici (Dritare, 2020) states that nowadays, the convergence of economic, social and environmental crises has led many economists and politicians to open a wide debate regarding the obvious defects and deviations shown by the GDP indicator. GDP is gross, because it does not consider the depreciation of the means of production; GDP does not calculate everything that is exchanged outside the market; GDP does not calculate the value of natural resources, which are used in the process of economic growth, because these are provided free of charge by nature; GDP cannot measure the informal and natural economy. A country could destroy its social system, squander natural resources, irreversibly pollute ecosystems, and still its GDP would grow, recording these abuses as economic progress. According to the French Commission on the Measurement of Economic Performance and Social Progress, held in 2008 by several Nobel laureates and prominent economists of the country, it underlined the profound inadequacy of GDP as a measure of economic performance, emphasizing the risks associated with its use as an indicator of progress: “This would lead to misleading conclusions about people’s well-being, leading to wrong political decisions.” Also, Kuznets, as early as 1934, warned about the risk of abusing GDP, emphasizing that the well- being of a nation cannot be understood only by a measure of national income that it made no sense to promote GDP growth as an end in itself. It was not the quantity, but the quality of GDP that interested Kuznets. He knew that the way in which economic performance is measured inevitably influences economic and political decision-making. In Albania, reliance on GDP as the primary measure of development has overlooked structural aspects such as human capital underinvestment, weak infrastructure, and exposure to the environment. These oversights suggest that a broader and more inclusive approach is needed, especially in relation to EU enlargement and international development goals. In the perspective of the development economy, at the beginning of the 21st century, information and knowledge are replacing capital and energy as the basic factors of wealth and well-being creation, just as the latter two replaced manual labor and land ownership two centuries ago. Technological progress has transformed the vast majority of wealth-creating work from a physical base to a knowledge base. The economy of developed countries is being included in this new system: information and communication technologies are present everywhere, accompanying the production and distribution process at every step. The world has entered a new period of economic history and development. As a result of a technological revolution, the world is involved in a challenge, producing a new reality regarding the process and concepts of development, in which "everyone encounters everyone". Albania is distinguishing itself day by day as a developing technological ecosystem with a high focus on innovation and digitalization. In recent years, various public and private, domestic and EU-backed programs support initiatives aimed at fostering the development of the technology sector, including investments in technological infrastructure, support for start-ups, and promotion of entrepreneurship. A recurring theme in recent development literature is the triad of inclusion, innovation, and resilience as essential components of sustainable growth (Stiglitz et al., 2009; Rodrik, 2011). These concepts align with both global frameworks and regional priorities: (i) Inclusion involves equitable access to INCLUSIVE, INNOVATIVE, AND RESILIENT: SHAPING ALBANIA'S FUTURE GROWTH FRAMEWORK 90 opportunities, reduction of social disparities, and representation in decision-making; (ii) Innovation entails not only technological progress but also institutional flexibility and knowledge-based growth; (iii) Resilience encompasses the ability to adapt to shocks, particularly climate change, pandemics, and geopolitical disruptions. Albania’s development strategies must therefore reflect these dimensions, going beyond sectoral GDP growth to assess broader impacts on society and the environment. Scholars emphasize the importance of integrated indicators that can measure system-wide transformation rather than isolated economic outcomes (Raworth, 2017). Despite adopting several international and regional frameworks, Albania lacks a national system for tracking multidimensional development outcomes. The current approach remains fragmented, with various ministries and agencies pursuing isolated initiatives without a unified strategic vision. As a result, development efforts often fall short of their intended impact or fail to reach marginalized populations. There is a growing consensus among Albanian researchers and policymakers on the need for a comprehensive, data-driven model that reflects the country’s specific needs and priorities. Such a model should integrate international standards while also addressing local realities such as urban-rural divides, institutional capacity constraints, and climate vulnerability (Guga, 2021; Zhllima et al., 2022). 2.2. Multidimensional Approaches to Growth In response to the limitations of GDP, various organizations have introduced multidimensional frameworks that incorporate social, environmental, and institutional indicators alongside economic performance. 2.2.1. Human Development Index and Sustainable Development Goals The Human Development Index (HDI), developed by the United Nations Development Programme (UNDP), combines indicators of life expectancy, education, and per capita income to offer a more human-centered measure of progress. The HDI has continued to attract widespread attention and motivates the work of activists, scholars and political leaders around the world. The important role of HDI in assessing the standard of living in a country has also been evaluated by the researchers (Dervis & Klugman, 2011) who suggested that the HDI, together with its family of measures focused on inequality and deprivation, provide key insights into levels and patterns of development. In terms of the human development index (HDI) of Albania, which is the index used by the United Nations to measure the progress of a country, was 0.789 points in 2022, leaving it in 74th place in the table of 193 countries published (countryeconomy, 2024). As of 2023, Albania but continues to lag behind the EU average in terms of education quality and income levels (UNDP, 2023). Irsida DINOSHI, Ahmet LEKA 91 Figure 1 - Trends in Albania HDI 1990 - 2022 Source: Human Development Reports (2023) Between 1990 and 2022, Albania's HDI value changed from 0.649 to 0.789, a change of 21.6 percent. Also, Albania's life expectancy at birth changed by 3.7 years, expected years of schooling changed by 2.9 years and mean years of schooling changed by 2.8 years. Albania's GNI per capita changed by about 208.1 percent between 1990 and 2022. Figure 2 - Expected Years of Schooling (years) Figure 3 - Gross National Income Per Capita ($) Figure 4 - Lif Expectancy at Birth (years) Figure 5 - Mean Years of Schooling (years) INCLUSIVE, INNOVATIVE, AND RESILIENT: SHAPING ALBANIA'S FUTURE GROWTH FRAMEWORK 92 The Sustainable Development Goals (SDGs), adopted in 2015, offer an even broader framework, emphasizing goals such as reduced inequalities, climate action, and quality education. Albania has committed to the SDG framework, and its voluntary national reviews highlight some progress, but persistent gaps remain—particularly in clean energy adoption, inclusive education, and institutional accountability (United Nations Albania, 2022). 2.2.2. Better Life Index The OECD Better Life Index assesses well-being across dimensions like housing, income, education, environment, civic engagement, and work-life balance (OECD, 2020). Although Albania is not an OECD member, the framework is relevant for comparative policy analysis, especially as the country aligns itself with EU standards. Albania scores low in civic engagement, job security, and environmental quality, indicating areas where GDP growth alone fails to ensure societal well-being. The human development index based on measures just like, long and healthy life (life expectancy at birth), education (expected years of schooling) and decent standard of living (gross national income per capita) for 2022 is 0.789 – put the country in the high human development category, positioning it at 74 out of 193 countries (UNDP, 2023). Figure 6 - Happiness Index of Albania 2017-2024 Source: The Global Economy (2024) Regarding the happiness index of Albania its 5.3 points out of 10 for 2024, which is an increase from 5.21 points in 2023. In comparison, the world average is 5.56 points, based on data from 138 countries. Historically, the average for Albania from 2013 to 2024 is 5.02 points. 2.2.3. Infrastructure Road Quality Index: Specific data on Albania's Road Quality Index over the past decade is limited. However, reports indicate ongoing efforts to improve road infrastructure, though challenges remain in achieving consistent quality nationwide. Internet Access: While exact figures are not provided in the available sources, Albania has made strides in increasing internet penetration, particularly in urban areas. However, a digital divide persists between urban and rural regions, impacting equitable access. Railways Modernization: Albania's railway infrastructure has faced challenges, with limited modernization efforts over the past decade. Investment in this sector remains crucial for enhancing connectivity and economic development. 2.2.4. Europe 2020 Strategy and Beyond GDP Irsida DINOSHI, Ahmet LEKA 93 The Europe 2020 Strategy and the European Pillar of Social Rights both emphasize inclusive growth, social fairness, and sustainability (European Commission, 2020). These policy frameworks advocate a move away from GDP as the sole economic target, encouraging member and candidate countries to monitor progress through indicators related to employment, poverty reduction, energy sustainability, and innovation capacity. The International Labor Organization (ILO) defines the unemployed as members of the economically active population who are without work but available for and seeking work, including people who have lost their jobs or who have voluntarily left work. According to official statistical data, the total unemployment rate, including men and women who are actively working, has marked a gradual decline from year to year. In the fourth quarter of 2024, the official unemployment rate in Albania, for the population aged 15 and over, is 8.8%. The unemployment rate has decreased by 0.8 percentage points, compared to the same quarter of 2023, and has increased by 0.7 percentage points, compared to the previous quarter. Figure 7 - Unemployment rate for active people with the age group 15 - 64 years old Source: Instat Databaza (2024) Albania, as an EU candidate country, has already incorporated some of these metrics in its Economic Reform Programme (ERP) and National Strategy for Development and Integration (NSDI). However, implementation remains uneven, especially in areas requiring interministerial coordination and data-driven decision-making (European Commission, 2023). Albania is ranked in Europe as a country with considerable water resources, with a hydrographic extension distributed almost throughout the territory. Although about 98% of electricity is produced by hydroelectric power plants, only 35% of the hydropower potential has been used so far. According to World Bank calculations, meeting domestic consumption is not sufficient with only what is produced. Therefore, it will be necessary to direct investments to other ways of producing thermal electricity, wind plants, solar energy, nuclear power plants, etc. On the other hand, climate change is one of the main issues of the new millennium. Electricity consumption in our country continues to increase from year to year by an average of 3% per year. Factors that influence the increase in consumption are:  Change in the structure of household/business consumption.  Growth of the tourism sector.  Industrialization.  Increase in GDP, and consequently economic well-being, etc. INCLUSIVE, INNOVATIVE, AND RESILIENT: SHAPING ALBANIA'S FUTURE GROWTH FRAMEWORK 94 Figure 8 - Energy net domestic production data and the consumption of electricity Source: Instat Databaza (2024) Experts are suggesting (Palnikaj, 2015) the construction of gas-fired power plants is the most acceptable solution for the current situation in our country. Gas-fired power generation is an intermediate solution between lower construction costs compared to renewable energy (wind, solar, nuclear, etc.) and lower emissions of harmful gases into the atmosphere compared to other non-renewable energy production methods (coal and oil). Innovation capacity. Based on the Global Innovation Index (GII1), Albania ranks 84th among 133 economies featured in the GII for 2024 year. Figure 9 - Albania Global Innovation Index Ranking 2020 - 2024 Meanwhile based on the European Innovation Scoreboard (CNA, 2024), Albania was ranked 35th in Europe on the for 2024, with an innovation index score of 46. This positions Albania among the lower-performing countries in terms of innovation. Historically Research and Development (R&D) spending on investments has been low, hindering innovation capacity. 1 The Global Innovation Index (GII) is published by the World Intellectual Property Organization (WIPO), a specialized agency of the United Nations. Irsida DINOSHI, Ahmet LEKA 95 Figure 10 - Shares of the enterprises active in innovation by economic sectors (%) Source: Instat Databaza (2024) Albania has made progress in digital adoption, with improvements noted in broadband coverage and digital skills. However, the overall digital ecosystem remains underdeveloped compared to EU standards. The number of patents filed and the startup ecosystem in Albania are still in nascent stages. Limited data suggests that more support is needed to foster innovation and entrepreneurship. 2.3. Regional Insights: The Western Balkans Several Western Balkan countries share Albania’s challenges, including high youth unemployment, emigration, low productivity, and overreliance on remittances. The Regional Cooperation Council (RCC) has proposed a Common Regional Market and the Green Agenda for the Western Balkans, which prioritize energy transition, digital connectivity, and inclusive labor markets as key areas of reform (RCC, 2021). Comparative research shows that countries with stronger investments in innovation, education, and sustainable infrastructure are better positioned to achieve long-term resilience and economic transformation (World Bank, 2022). For example, Serbia has made significant advances in its digital public services and innovation hubs, while North Macedonia has improved vocational training systems in line with labor market needs. Albania can draw lessons from these examples to design a more inclusive and innovative development path. 3. METHODOLOGY This study employs a mixed-methods research design to investigate how Albania can transition toward a more inclusive, innovative, and resilient development model, moving beyond GDP as the sole metric of progress. The central research hypothesis posits that a multidimensional development framework—emphasizing human capital, innovation, institutional quality, and resilience—has a significant and positive effect on sustainable economic growth in Albania. INCLUSIVE, INNOVATIVE, AND RESILIENT: SHAPING ALBANIA'S FUTURE GROWTH FRAMEWORK 96 3.1. Research Design This study employs a mixed-methods exploratory approach, combining quantitative analysis of secondary data with qualitative policy review. The aim is to investigate the relationship between Albania’s economic growth and indicators that reflect inclusive, innovative, and resilient development. By integrating multidimensional datasets and comparative policy insights, the research identifies gaps between GDP growth and broader developmental outcomes. The methodological framework reflects a shift from traditional econometric modeling based solely on macroeconomic variables toward a more integrated development evaluation model. This model is inspired by frameworks such as the Human Development Index (HDI), the OECD Better Life Index, and the United Nations’ Sustainable Development Goals (SDGs), contextualized to Albania’s national realities and strategic aspirations. 3.2. Research Objectives The research methodology is structured around the following objectives: 1. To assess the correlation between GDP growth and non-monetary development indicators such as education, innovation, and sustainability over the last decade. 2. To identify sectorial disparities in Albania's development, particularly in infrastructure, youth employment, and digitalization. 3. To propose a new framework for measuring Albania’s economic well-being, integrating inclusive, innovative, and resilience-based indicators. The main hypotheses are: H1: Albania’s economic growth and development can be more effectively fostered through an integrated framework that prioritizes inclusivity, innovation, and resilience, beyond traditional GDP measures. We have taken into the consideration to add the sub-hypotheses based on the main independent indicators used in the econometric model such as: H1a: Investments in human capital (education, skills) significantly contribute to sustainable and inclusive growth. H1b: Infrastructure development and digital innovation positively correlate with Albania’s long-term economic resilience. H1c: Environmental sustainability and institutional reforms are essential components of resilient economic development. The econometric component seeks to quantify the relationship between multidimensional development factors and economic growth. The following model is proposed: 3.3. Variables and Econometric Model The econometric component seeks to quantify the relationship between the development factors included in this model as independent variables and the economic growth. The model used in this study research to verify the main hypothesis and the strength of the connection of the variables is: 𝐺𝐷𝑃𝑡 = 𝛼 + 𝛽1𝐻𝐶𝑡 + 𝛽1𝐼𝑁𝑁𝑂𝑉𝑡 + 𝛽3𝐺𝑂𝑉𝑡 + 𝛽4𝑅𝐸𝑆𝑇 + 𝜀𝑡 Irsida DINOSHI, Ahmet LEKA 97 Where: GDPt = GDP per capita or real GDP growth HCt = Human Capital Indicators INNOVt = Innovation metrics RESt = Resilience indicators 𝜀𝑡 = Error term 3.4. Estimation Strategy The authors have used the econometric techniques such as: - Ordinary Least Squares (OLS) regression with heteroskedasticity-robust standard errors - Stationarity testing using Augmented Dickey-Fuller (ADF) tests to confirm the validity of time-series modeling - Diagnostic tests to assess multicollinearity (Variance Inflation Factor), autocorrelation (Durbin-Watson test), and model specification (RESET test) 3.5. Limitations Data availability: For some indicators—particularly innovation and environmental sustainability—annual data are incomplete or unavailable, requiring the use of proxy variables. The potential for reverse causality or omitted variable bias is acknowledged, though the study aims to mitigate this through careful variable selection and robustness checks. While the case study focuses on Albania, findings may have limited applicability to other regional contexts without further comparative analysis. Table 1: Dependent Variable: Real GDP Growth Rate (%) Variable Coefficient Std. Error t-Statistic p-Value Human Capital 0.213 0.072 2.96 0.004 ** (Secondary School Enrollment Rate, %) Sustainable Development 0.165 0.060 2.75 0.008 ** (Renewable Energy % of Total) Innovation 0.348 0.098 3.55 0.001 *** (R&D Expenditure as % of GDP) Resilience 0.190 0.081 2.35 0.021 ** (Export Diversification Index) Constant 1.728 0.590 2.93 0.005 ** R-squared: 0.72 Adjusted R-squared: 0.69 F-statistic: 24.36 Prob (F-statistic): 0.000 Number of Observations: 30 INCLUSIVE, INNOVATIVE, AND RESILIENT: SHAPING ALBANIA'S FUTURE GROWTH FRAMEWORK 98 4. RESULTS AND DISCUSSION The econometric model provides statistically robust evidence supporting the main hypothesis that a multidimensional approach—encompassing human capital, sustainability, innovation, and resilience—has a significant and positive impact on Albania’s real GDP growth rate. All independent variables in the model were found to be statistically significant at the 5% level or better. Specifically: Human Capital, proxied by secondary school enrollment rates, has a positive and significant effect (β = 0.213, p = 0.004). This supports the view that long-term investment in education directly enhances productivity and growth capacity. Sustainable Development, captured through the share of renewable energy in total energy consumption, also shows a positive influence (β = 0.165, p = 0.008). This underlines the economic benefits of transitioning to a green economy, especially in terms of energy security and environmental efficiency. Innovation, proxied by R&D expenditure as a percentage of GDP, exhibits the strongest effect on growth (β = 0.348, p = 0.001). This reflects the crucial role of technological advancement and knowledge-intensive sectors in propelling economic expansion. Resilience, measured by export diversification, also has a statistically significant and positive effect (β = 0.190, p = 0.021), suggesting that an economy’s ability to withstand shocks and reduce dependency on a narrow set of export goods enhances stability and long-term growth. The model explains approximately 72% of the variance in real GDP growth, indicating a good fit. The high F-statistic (F = 24.36, p < 0.001) confirms the joint significance of the independent variables. These findings support the central hypothesis of this paper: Albania’s future growth must be inclusive, innovative, and resilient—driven by strategic investments in human capital, green development, innovation ecosystems, and structural diversification. Policy Implications The findings of this study suggest that for Albania to achieve long-term, inclusive, and resilient growth, policymakers must adopt a multidimensional strategy that moves beyond a sole focus on GDP. Based on the econometric model and conceptual analysis, several key policy implications emerge: Invest in Human Capital: Enhancing the quality of education, skills development, and health services is central to unlocking productivity and innovation. A targeted focus on vocational training, STEM education, and digital literacy would help align the labor market with the demands of a modern economy. Foster Innovation and Digitalization: Strengthening the national innovation ecosystem—through R&D investment, support for startups, and digital infrastructure—is essential to transition from low-value-added sectors to more competitive and technology- driven industries. Promote Sustainable Development: Economic growth must be aligned with environmental sustainability. This includes incentives for green energy, efficient public Irsida DINOSHI, Ahmet LEKA 99 transport, and sustainable agriculture practices. Integrating the EU Green Deal into national strategies would also help Albania align with future accession requirements. Enhance Economic Resilience: building resilience means increasing the adaptability of institutions and the private sector to external shocks such as climate change, financial volatility, or geopolitical risks. Strengthening public sector efficiency, diversifying the economy, and creating fiscal buffers are crucial steps. Leverage EU Integration: Albania’s EU accession process presents a unique opportunity to accelerate reforms in governance, rule of law, and infrastructure. Alignment with EU standards can serve as a catalyst for structural transformation and institutional capacity building. 5. CONCLUSIONS Albania stands at a critical juncture in its development journey, requiring a shift in focus from growth quantity to growth quality. 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