The use of gross fixed capital formation as a measure of construction output

Abstract

There is a need to model construction industries in different countries for international construction marketing purposes and global construction and environmental policy. In the absence of a common method of construction data collection and analysis, estimates of the size of national construction industries use econometric models. One such approach relates contractors’ output to its share of gross fixed capital formation (GFCF), and uses this relationship in one economy to estimate construction output in another country. To examine the relationship between contractors’ output and GFCF a number of regressions were run. As GFCF is available for all countries, two candidate measures are evaluated as proxies for construction output, namely total GFCF and the construction element of GFCF. A strong relationship is found to exist between UK construction output and GFCF. This is significant as a validation of UK measures of construction output, although the two data series are compiled separately using different samples and some statistical variation would therefore be expected. The paper supports the use of the total construction element in GFCF as a proxy for construction output. This work therefore prepares the way for further modelling of construction output internationally using detailed construction data and GFCF.