A longitudinal analysis on the relationship between construction output and GDP in Hong Kong

Abstract

The relationship between construction output and economic growth has been well discussed by construction economists. Most of the previous studies found a positive correlation between gross domestic product (GDP) per capita and various measures of construction output. However, cross‐sectional analysis was commonly adopted but longitudinal analysis has been called upon. Furthermore, recent research argued that non‐linear relationship between GDP and construction output exists because of different stages of economic development in different countries. They explained the phenomenon by means of the change of the growth rates of construction output at different stages of economic development, but the argument has not yet been rigorously tested. With the availability of long time‐series of data of Hong Kong construction industry, this paper attempts to test longitudinally the relationship between the real growth rate of construction output and the real growth rate of GDP. It was found that the growth rate of GDP led that of construction output, and as the growth rate of GDP increased, the growth rate of construction output was marginally diminishing. It agrees with the proposition that construction industry is relatively inefficient in productivity improvement and the accumulation of capital investment results in a marginally diminishing growth of construction output.