Role of construction in economic development: Review of key concepts in the past 40 years
Introduction
Empirical evidence that pointed to the significant role of the construction industry in economic development was first surfaced by D. A. Turin in the 1960s during his tenure at University College London. Since then, many such studies have been completed by others over the past 40 years in further attempts to provide a clearer understanding of the relationship between construction and economic development. This paper reviews the studies completed in the past four decades which evaluated the role of the construction sector, with focus on infrastructural construction, in the process of economic development. Contributions of the construction industry come from the linkages between the construction sector and the economy as a whole, and the intersectoral linkages between construction and other sectors as well. The use of construction investments as a tool for the government to stabilize the economy also shows the industry’s key position in the national development strategy. Despite these prominent roles, some current concerns of the industry’s performance as an economic activity to stimulate economic growth remain. These concerns will be identified in the paper for further research in the Conclusion section.
Section snippets
Capital formation
The productive capacity of an economy is usually described in terms of the complete utilization of factors of production; that is the full employment of the factors of production (labour and capital). Hence, the productive capacity determines the aggregate supply or national output of an economy in the long run. If there are changes in the total capital stock, the fixed amount of national output will change accordingly. One way for an economy to expand production or grow is to invest in capital
Construction and sectoral output
The ability of the construction industry to stimulate economic growth also comes from the strong linkages between construction and other sectors in the economy. The construction industry is one of the top four out of twenty economic sectors in terms of intersectoral linkages, backward and forward linkages (Riedel & Schultz, 1978). The important role of construction through a complex set of inter-relationships was also highlighted by Ofori (1990).
Construction and macroeconomic stabilization
The contribution of construction in the economy has also been measured by construction employment as a share of total employment (Strassmann, 1970, Turin, 1978, Wells, 1985). Turin (1978) suggested that since employment in construction correlated positively with economic growth, there is a potential use of construction to generate sustained employment. Turin (1978) also argued that the misuse of construction by the government as a cheap way to absorb unskilled unemployment through ill-planned
Government institutions for construction industry development
The role of the construction industry in the economy recognized by academics has led to the recommendation of creating a government agency which specifically deals with the development of the construction industry. Having observed the critical role of construction in the developing economies, Turin (1978) suggested the establishment of such a government department. The roles and functions of such an agency were furthered analyzed by Ofori (1985). Several countries have realized the constraints
Conclusion
The key concepts relating to the role of the construction industry in economic development over the past 40 years were reviewed. Much of the existing empirical literature on the linkage between construction and economic growth seeks to capture this effect through observation of the relationship between increases in the construction outputs (measured by the share of construction in GFCF or value added) and some measures of aggregate output (GDP or GNP). Many of the findings from these studies
Recommendations for further research
In the course of this study, several issues were also identified. However, because of length limitations, these issues have not be elaborated further in detail here but are instead recommended for further studies. These issues include:
- 1.
The apparent mismatch between the construction cycle and the business cycle can lead to an inadequate or excess supply of infrastructure in the short term. Following the seasonal up-swings and down-swings of the economy, three related scenarios may be discernible
Acknowledgement
This research is supported by the Department of Building, School of Design and Environment, National University of Singapore. The authors would also like to thank the two anonymous reviewers for their very constructive comments and suggestions. The recommended areas for further research, as annotated above, are attributed in the main to them.
References (95)
Is public expenditure productive?
Journal of Monetary Economics
(1989)- et al.
On the determinants of cross-country aggregate agricultural supply
Journal of Econometrics
(1987) - et al.
How infrastructure and financial institutions affect agricultural output and investment in India
Journal of Development Economics
(1993) The future of international construction: secular patterns of growth and decline
Habitat International
(1992)- et al.
The role of construction in the national economy: a comparison of the fundamental structure of the US and Japanese input–output tables since World War II
Habitat International
(1986) The broader effects of transportation infrastructure: spatial econometrics and productivity approaches
Transportation Research Part E: Logistic and Transportation Review
(2010)- et al.
The composition of public expenditure and economic growth
Journal of Monetary Economics
(1996) Construction and development: a new perspective
Habitat International
(1980)- et al.
Public infrastructure and regional economic development: a simultaneous equations approach
Journal of Urban Economics
(1991) - et al.
Infrastructure-production system dynamics in national and regional systems: an econometric study of the Indian economy
Regional Science and Urban Economics
(1988)
Practice of construction industry development at the crossroads
Habitat International
Linkages between industry and services and their implications for urban employment generation in developing countries
Journal of Development Economics
Construction and development
Habitat International
The role of construction in economic growth and development
Habitat International
Infrastructure and aggregate agricultural productivity: international evidence
Economic Development and Cultural Change
Business location decisions in the United States: estimates of the effects of unionization, taxes, and other characteristics of states
Journal of Business & Economic Statistics
Measuring the contribution of public infrastructure capital in Sweden
Scandinavian Journal of Economics
Economic structure and maturity
An input–output analysis of the Turkish construction sector, 1973–1990: a note
Construction Management and Economics
The future of international construction
Historical comparison of construction sector in the US, Japan, Italy and Finland using input–output tables
Construction Management and Economics
Some new evidence of old trends: Japanese construction, 1960–1990
Construction Management and Economics
Is public construction countercyclical?
Land Economics
A database of world infrastructure stocks, 1950–1995
World Bank Economic Review
The effect of infrastructure networks on economic growth
Why new firms locate where they do: an econometric model
Empirical tests to discern linkages between construction and other economics sectors in Singapore
Construction Management and Economics
The characteristics and current status of China’s construction industry
Construction Management & Economics
Raising agricultural output: price and nonprice factors
Finance and Development
Fiscal policy and private investment in developing countries: Recent evidence on key selected issues
Construction industry reform and development act 1992
Background and history
The global construction market: a cross-sectional analysis
Construction Management and Economics
What do government buy? The composition of public spending and economic performance
Expansion and employment
American Economic Review
Fiscal policy and economic growth: An empirical investigation
The construction industry in developing countries
International Labour Review
Foundations for change: Aspects of the construction industry in developing countries
Report of the hundred and nineteenth round table on transport economics held in Paris on 29–30th March 2001 on the following topic: Transport and economic development
Public planning of mega-projects: overestimation of demand and underestimation of costs
Local public policies and interregional business development
Southern Economic Journal
Employment, technology and construction development: With case studies in Asia and China
Construction economics: An introduction
Towards a dynamic economics, some recent developments of economic theory and their application to policy
Cited by (164)
Review on the mechanical properties of rubberized geopolymer concrete
2024, Cleaner MaterialsTowards human-centered artificial intelligence (AI) in architecture, engineering, and construction (AEC) industry
2023, Computers in Human Behavior ReportsAdapting the activity-based costing method for water footprint accounting
2023, Journal of Cleaner ProductionInnovation communities as catalysts for BIM adoption: a cross-case analysis of BIM communities in Norway and Vietnam
2024, Construction InnovationBiomimicry and Sustainable Building Performance: A Nature-inspired Sustainability Guide for the Built Environment
2024, Biomimicry and Sustainable Building Performance: A Nature-inspired Sustainability Guide for the Built Environment