Post-Socialist Financial Fragility: The Case of Albania

Posted: 28 Aug 2001

See all articles by D.J. Bezemer

D.J. Bezemer

University of Groningen - Faculty of Economics and Business

Abstract

The 1997 collapse of the Albanian economy caused by the collapse of economy-wide Ponzi schemes contrasts sharply to its success status as a post-Socialist transition country in the years 1992-1996. In this paper, an attempt is made to explain this 'Albanian Paradox'. The specific Albanian conditions for the growth of Ponzi schemes are identified. Theoretically, the Albanian Paradox can be interpreted as one version of the 'Financial Instability Hypothesis' suggested by Minsky. Investigation of the underlying factors that render financial markets fragile suggest that the Albanian case is extreme but not unique in the region. It is emphasised that sustainable growth is predicted on the quality of government, on proper financial-sector regulation, on actual microeconomic restructuring and on the development of market institutions through which adequate market information is disseminated.

Keywords: Albania, Ponzi schemes, financial instability hypothesis, transition economies

Suggested Citation

Bezemer, Dirk J., Post-Socialist Financial Fragility: The Case of Albania. Cambridge Journal of Economics, Vol. 25, No. 1, January 2001. Available at SSRN: https://ssrn.com/abstract=253296

Dirk J. Bezemer (Contact Author)

University of Groningen - Faculty of Economics and Business ( email )

Postbus 72
9700 AB Groningen
Netherlands

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