Economic Shocks and the Growth of the Construction Industry in Ghana Over the 50-Year Period From 1968 to 2017

Abstract

The study analyses the relationship between the growth of the construction industry and economic shocks in Ghana over the 50-year period from 1968 to 2017 using an autoregressive modelling scheme that incorporates several economic shocks as separate independent variables. The independent variables used in the model included one positive economic shock and five negative shock variables. The positive shock variable was the sharply increased government expenditures on construction activities in selected years that allowed the government to host international events in Ghana within a period of two years. The five adverse economic shocks included in the model were political instability related to military coups, exchange rate depreciation of the local currency, Ghana cedi, with respect to the United States dollar, the average yearly temperature, aggregate electricity energy production shortfall related to a severe El Nino weather phenomenon, and incidence of extreme rainfall. The results of the analysis indicated that the most important factor influencing the growth of the construction industry in Ghana over the 50-year study period was political instability. Beyond political instability, the next most important factor was the purposely-driven sharp increases in government expenditures on construction activities for selected years that allowed the country to host international events in the country. The other significant economic shocks were the exchange rate depreciation, average temperatures, and electricity energy production shortfall; all three factors adversely affected the growth of the construction industry. The results of our study are generally consistent with those obtained from the literature concerning the positive and negative effects of economic shocks on the construction industry.