Investment in construction and economic growth in developing countries

Abstract

The development of a model of interdependence between investment in construction and gross domestic product (GDP) per capita, based on a long-term trend, for the developing countries of Sub-Sahara Africa (SSA) is presented. The study follows previous research undertaken by others who have investigated the relationship between investment in construction and economic development and found a positive correlation between the share of construction in GDP and the level of national income. The hypothesis tested is: there is a minimum level of investment in construction in developing countries (measured in terms of construction value added [CVA] as a percentage of GDP) to achieve sustainable growth in the economy. The study is based on data acquired on 15 of the countries in SSA over 22 years and the sample is split into two groups: one in which GDP per capita is rising, the other in which GDP per capita is falling. This research puts forward evidence that there is a critical level of CVA/GDP (at 4-5%) below which a relative decrease in construction volume corresponds directly to a decreasing growth in GDP per capita. The converse does not appear to be true. Implications and recommendations for public policy for the concerned countries are discussed.