The Driving Force behind the Boom and Bust in Construction in Europe
IMF Working Papers, August 21, 2013
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- The Driving Force behind the Boom and Bust in Construction in Europe
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Bibliographic details
- Authors: Yan M Sun, Pritha Mitra, Alejandro Simone
- Published: August 21, 2013
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484392485.001
Summary and research question
- Examines factors behind pro-cyclical but widely varying construction shares (as a percent of GDP) across countries, with a strong focus on European countries.
- Uses a dataset covering 48 countries (including advanced and emerging economies within and outside Europe) for 1990-2011.
- Objective: identify determinants of a "norm" around which actual construction shares revolve using a simple AR(1) and error-correction process.
Data and methodology
- Sample: 48 countries for 1990-2011.
- Estimation approach: AR(1) and error-correction process to model adjustment dynamics of construction share.
- Key explanatory factors investigated: geography, demographics, and economic conditions.
Key empirical findings
- Country’s geography, demographics, and economic conditions are the key determinants of a norm for construction share.
- In many European countries, construction shares overshot relative to their norms before the recent global crisis.
- Construction shares have fallen significantly since the crisis.
- Some countries still have room for further adjustment in construction shares, which may weigh on economic recovery.
Policy implications and interpretation
- Overshooting of construction shares prior to the global crisis implies potential for further downside adjustment in some countries.
- Further adjustment in construction shares could act as a drag on economic recovery in affected countries.
- Monitoring norms and adjustment dynamics (via AR(1) and error-correction frameworks) can inform macroeconomic and sectoral policy responses.
Keywords and subjects (as listed)
- Subjects: Capital spending, Expenditure, Financial markets, Housing, Income, National accounts, Stock markets
- Keywords: adjustment dynamics of construction share; adjustment in construction share; Business Cycle; Capital spending; Construction; construction share; construction share norm; Error-correction; estimated construction share norm; Europe; European Growth; Housing; Income; increase in construction share; medium-term norm; norm equation; norm vis-a-vis; share norm equation; share of construction; significance level; Stock markets; WP
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- _wp13181 - Executive Summary