Construction Sector Role in Gross Fixed Capital Formation: Empirical Data from Russia

Abstract

The purpose of this study was to research and understand the interrelations between the growth of gross fixed capital formation (GFCF), the volume of construction industry, supply of interindustry balance, and amount of fixed-asset investments in Russia between 2000 and 2016. The autoregressive distributed-lagged (ARDL) bound testing methodology and regression analysis were applied to evaluate the cointegration and influence of construction industry volume on gross fixed-capital formation. Empirical studies on the role of the construction industry are at the forefront of economic research; however, ARDL modeling studies of GFCF have yet to be conducted in Russia. The study revealed a non-linear causation between construction industry volume and the growth in GFCF over a long time period. The correlation was stationary and cointegrated. Fixed investment positively affected gross fixed capital formation only in periods of economic expansion, whereas the effectiveness of fixed-asset investments had greater volatility in times of crisis. The construction industry was not practically affected by crisis shocks, demonstrating a permanent stationarity in the causal relationship with GFCF, whereas causal relations between GFCF and the supply of interindustry balance were absent. The results are important for further research in the field of economic growth, the development of a national budget and investment policy, as well as investment project selection.