Abstract
An accurate measurement of the impacts of external shocks on construction demand will enable construction industry policymakers and developers to make allowances for future occurrences and advance the construction industry in a sustainable manner. This paper aims to measurethe dynamic effects of the late 2000s global financial crisis on the level of demand in the Australian construction industry. The vector error correction (VEC) model with intervention indicators is employed to estimate the external impact from the crisis on a macro-level construction economic indicator, namely construction demand. The methodology comprises six main stages to produce appropriate VEC models that describe the characteristics of the underlying process. Research findings suggestthat overall residential and non-residential construction demand were affected significantly by the recent crisis and seasonality. Non-residentialconstruction demand was disrupted more than residential construction demand at the crisis onset. The residential constructionindustry is more reactive and is able to recover faster following the crisis in comparison with the non-residential industry. The VEC model with intervention indicators developed in this study can be used as an experiment for an advanced econometric method. This can be used to analyse the effects of special eventsand factors not only on construction but also on other industries.
Highlights
The construction industry is an important sector of a nation’s economy
Previous research on event analysis focuses on how events affect the market or concerned indicators but doesn’t assess the market or indicators in the absence of an event. This study addresses this issue by estimating construction demand based on two scenarios: A - the change of construction demand is assumed to follow the trend of economic growth in the pre-crisis period, with no effects of the global financial crisis, and B - the change in construction demand is assumed to follow the trend of economic growth in the post-crisis era
The estimates of the effect of an event are based on the entire historical data of the variable concerned, and not on the comparison of a few quarters
Summary
The construction industry is an important sector of a nation’s economy. It makes a significant contribution to the economic output and provides employment and business opportunities (Li & Liu 2012). Ofori (1990) highlighted that construction is the engine of economic growth. The total residential and non-residential values of construction work approved were abstracted from the Australian Bureau of Statistics for assessing the effects of the recent global financial crisis on the different types of construction industries (ABS 2012). The deterministic trend in model three and one co-integration relationship was identified and implemented into these three VEC models These results suggest that the three types of construction demand and selected economic indicators do not move independently of each other in the long-term and share some common trends. Having found the long-term relationships between three types of construction demand and selected economic indicators, three VEC models with global event and seasonal intervention indicators were constructed based on Equation (5). The lagged construction demand, the growth of population and the interest rate have significant roles in explaining the level of demand in the construction industry
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