The relationship between construction sector and the national economy of Sri Lanka

Abstract

The causal relationship between construction and a country's economy has received much attention in the past. However, the results provide contrasting views on the nature of this relationship. This paper therefore investigates the direction of the causal relationship between construction and the economy of a developing country, Sri Lanka. It uses empirical data for selected economic and construction indicators for the period 1990-2009. The pattern of the causal relationship was determined using Granger causality test. The findings reveal that for all indicators except construction investment, national economic activities precede that of construction. The study therefore concludes and strengthens the body of knowledge on Sri Lanka that the causal relationship between its construction sector and national economy tend towards a uni-directional relationship with the national economy inducing growth in the construction sector and not vice versa. © 2014 Springer-Verlag Berlin Heidelberg.