Relationship between construction expenditure and economic growth in Sub-Saharan Africa

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.