Modeling Sectoral Construction Demand and Its Relationship with Economic Indicators

Abstract

The published literature abounds with evidence of a need to relate construction activities with the general economic environment. The effect of economic fluctuations has a major impact on the performance of the construction sector. Economic indicators, which are measures of national economic performance, may serve as viable input variables to model construction demand. The general groups of measures that are closely related to demand for residential, industrial and commercial building construction include national output, population and employment, government fiscal policies, national consumption, investment and savings, industry and commerce, balance of payments, money and interest rates, and prices and wages. Traditionally, in macroeconomic modelling studies, independent variables are selected systematically by satisfying two main criteria: economic significance and statistical adequacy. However, this has not been the case in construction demand modelling studies. There has yet to be an approach which includes variable selection as part of the whole modelling process. Therefore, a systematic approach is proposed and validating it entails comparing the results of the present study with those of a similar study. The main finding implies that carrying out the statistical variable selection is an important step in finalising the set of variables to be used in the modelling process.