Abstract: Exchange rates play a decisive role in economic development, particularly for Albania, a small country that, since 1991, has shifted from a planned economy to a market-based system. This study examines how currency fluctuations have affected exports, foreign direct investment (FDI), and economic growth between 2000 and 2023, employing ARDL and VAR models. The findings indicate that, in the short run, depreciation tends to slow growth, while in the long run the effect turns positive by strengthening trade competitiveness. Moderate inflation appears linked to sustained growth, whereas high interest rates act as a drag. Foreign direct investment emerges as a crucial driver in both the short and long term. A comparison with other Western Balkan countries shows that Albania’s exchange rate regime, striking a balance between rigidity and flexibility, has provided a degree of macroeconomic stability but, in recent years, has weighed on exports. From this analysis follows the recommendation to maintain a stable exchange rate policy, keep inflation in check with caution, and continue fostering an investor-friendly environment.

Keywords: exchange rate, exports, economic growth, appreciation, Albania

Pages: 248-254