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Advisor(s)
Abstract(s)
It has long been recognised that the role of the construction industry in a country’s national economy goes beyond its share in national output. Existing paradigms on the structural change of the construction industry as national economy develops over time have been evolving from an approach that stresses the role of construction investment (indeed physical capital) as an engine of economic growth to one where the pattern of the evolution of the industry should follow that of the general economy. Using time–series data drawn from the United Nations national accounts databases, this study applies an econometric methodology to assess the validity of the underlying propositions in a high-income economy - Portugal - over the long period of 38 years. With the availability of long and reliable time-series data and the development of econometric methodology related to the study of economic relationships between variables a new set of studies has emerged. Indeed, making use of the most recent innovations in the literature of unit root tests, this paper uses the Granger causality methodology to investigate the relationship between construction activity, measured by the construction value added, and the Portuguese aggregate economy measured by its Gross Domestic Product (GDP). The issues of concern here are whether the construction sector and the aggregate economy are interdependent and whether construction activity contributes to economic growth and/or economic growth contributes to the dynamics of the construction industry activity. This kind of economic research has not been applied, until now, in Portugal. However, the results could be of particular importance for policy makers and economic agents since they might affect not only all macroeconomic policy but also the management activities at a microeconomic level. The results have shown that there is, in the short and medium-run, a uni-directional relationship between GDP and construction output in Portugal. On the other hand, the results do not show any significant effect of the construction growth on the GDP growth, at least in the short and medium run.
Description
Keywords
Portugal Construction sector GDP Unit root tests Granger causality
Citation
Nunes, Alcina ; Lopes, Jorge; Balsa, Carlos (2011). Is there a causal relation between construction activity and the Portuguese economy? An econometric empirical application. In 10th European Conference on Research Methodology for Business and Management Studies. Normandy Business School, Caen, France. p. 402-410. ISBN 978-1-908272-02-7.
Publisher
Marie Ashwin, Normandy Business School - France