Albania has always been an underdeveloped country. Before World War II, there were only a few small-scale industrial plants and only a few of the larger towns had electricity. Subsoil resources were potentially rich, but only coal, bitumen and oil were extracted—by Italian companies. Transportation was poorly developed. Stockbreeding contributed about half of the agricultural output; by 1938, tilled area represented only 23% of the agricultural land. Forests were exploited and reforestation neglected.
After the war, the Communist regime pursued an industrialization program with a centrally planned economy. Development projects received priority, especially mining, industry, power, and transportation. Consumer goods, agriculture, livestock, and housing were relatively neglected. By 1950, Albania had its first standard-gauge railways, a textile combine, a hydroelectric power plant, a tobacco fermentation plant, and a sugar refinery. Mineral extraction, especially of oil, chrome ore (the main export product) and iron-nickel, was increased. Land cultivated under crops or orchards expanded by over 70% from the 1950s to the 1980s. Although collectivized, farmland was again privatized in 1992 and distributed to peasants. But despite significant progress, living standards in Albania were still among the lowest in Europe. When central planning was abandoned, there was no mechanism to take its place, and GDP fell 45% during 1990–92. It rose by at least 5% in 1995, however. After prices were freed, the inflation rate shot up to 226% in 1992, but dropped to 86% in 1993. Consumer prices and unemployment mounted rapidly in 1994.
More trouble followed in 1997 with the countrywide collapse of financial pyramid schemes. The resulting chaos left the government paralyzed, and over 1,500 Albanians died in the ensuing violence that swept the country before an international peacekeeping force restored order. More economic hardship struck Albania in 1999 as the country received 450,000 Kosovar refugees. Western aid helped the Albanians manage the influx.
As Albania entered the 21st century, its economy had begun to improve. Inflation remained low, the economy was expanding at a rate of approximately 7% a year, and foreign direct investment was growing. Economic growth came largely from the transportation, service, and construction sectors. The state was privatizing industries, and as of 2002, nearly all land in Albania was privately owned. However, the country's transition to a free-market economy did not come without difficulties. Unemployment remained high, and the economy remained based on agriculture (around 50%). Crime and corruption were problems, as were governmental bureaucratic hurdles that hamper business activity. The country's infrastructure was still outmoded and in disrepair, and in dire need of funding. Severe energy shortages caused blackouts and were responsible for small businesses failing; in 2003, the country was increasing its imports of electricity.
In 2001, Albania joined Bosnia and Herzegovina, Bulgaria, Croatia, the former Yugoslav Republic of Macedonia, Romania, and Serbia and Montenegro (Yugoslavia) in creating a Balkan free trade zone. Tariffs on selected goods were to be eliminated under the agreement. In September 2000, Albania joined the World Trade Organization, signaling its commitment to the process of economic reform.