Construction and Economic Development: The Case of Malaysia

Abstract The construction sector plays a crucial role in economic development. The causal link between construction activity and economic development in Malaysia is examined. Granger causality methodology was employed to investigate the lead-lag relationships between the construction flow and the GDP of Malaysia on the quarterly time series between 2000Q1 and 2009Q4 and the yearly time series between 1970 and 2009. The quarterly data shows two-way direction of relationship between the construction and the overall economy. The yearly data shows a unidirectional causality running from construction sector to the aggregate economy. It concluded that the construction activity may cause changes in GDP but GDP does not adjust instantaneously to change in construction activity. The result is expected to be useful for policymakers and industrial practitioners in formulating industrial policies and corporate strategies.

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