The Driving Force behind the Boom and Bust in Construction in Europe

Author/Editor: Yan Sun ; Pritha Mitra ; Alejandro Simone
Publication Date: August 21, 2013
Electronic Access: Free Full text (PDF file size is 697KB).
Use the free Adobe Acrobat Reader to view this PDF file

Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary: This paper studies the factors behind pro-cyclical but widely varying construction shares (as a percent of GDP) across countries, with a strong focus on European countries. Using a dataset covering 48 countries (including advanced and emerging economies within and outside Europe) for 1990-2011, we find that country’s geography, demographics, and economic conditions are the key determinants of a norm around which actual construction shares revolve in a simple AR(1) and error-correction process. The empirical results show that in many European countries, construction shares overshoot relative to their norms before the recent global crisis, but they have fallen significantly since the crisis. Nevertheless, there is still room for further adjustment in construction shares in some countries which may weigh on economic recovery.
Series: Working Paper No. 13/181
Subject(s): Infrastructure | Europe | Euro Area | Housing | Tourism | Economic conditions | Demand | Business cycles | Developed countries | Developing countries | Cross country analysis

Publication Date: August 21, 2013
ISBN/ISSN: 9781484392485/1018-5941 Format: Paper
Stock No: WPIEA2013181 Pages: 36
US$18.00 (Academic Rate:
US$18.00 )
Please address any questions about this title to