Abstract:
The importance of the construction industry cannot be overemphasized
because of its strong linkages with other sectors of the economy. Despite this,
the empirical literature on the non-linear (Bon curve) relationship between
construction expenditure and economic growth remains unclear and hence,
leave much space for further engagements. Therefore, this study seeks to find
answers to these questions: Does construction expenditure matter in economic
growth, and does the Bon curve hold in sub-Saharan Africa (SSA)? Using
panel data for 33 countries in SSA spanning from 1990 to 2014, the study
analysed relationship between construction expenditure and economic growth.
The main estimation techniques employed were the panel Autoregressive
Distributed Lag (ARDL) model and the Dumitrescu Hurlin panel causality test
respectively. The results revealed a positive relationship between construction
expenditure and economic growth both in the long run and short run, although
the latter was statistically insignificant. There was also a non-linear (inverted
U-shaped) relationship found between construction expenditure and economic
growth with a turning point of 11.28%, suggesting that the Bon curve holds
for SSA. The study further showed a bidirectional relationship between
construction expenditure and economic growth, at least for a four-year lag
period. These findings highlight the importance of the construction industry to
economic growth in SSA and hence, the study recommends that policy makers
and various governments need to be circumspect in controlling the level of
construction expenditure because expansion of construction expenditure
beyond the turning point may not bring the desired impact on economic
growth.
