Construction investments and economic growth in Western Europe

Abstract

The research task in the present study is to examine the statistical relationship between gross domestic product and a broad group of construction and, furthermore, the presence of crowding-out within the construction industry in Europe. The empirical analyzes support the findings of no crowding-out effect within the construction industry. Contrary, it seems that investments in especially infrastructure will have a complementary filling-in effect by an increase in both residential and other building construction. The Granger causality tests are not conclusive. However, the results imply that GDP Granger cause total construction in the short run, but not vice versa. Furthermore, infrastructure investments Granger causes GDP in the short run. The overall conclusion is that public infrastructure policies have an effect on short-run economic growth but only a weak effect on the long run and that there exist a filling-in effect from other types of construction. Furthermore, residential construction does have a long-run effect on economic growth.