Casual relationship between construction activities & GDP growth in Sri Lanka

Abstract

The construction industry plays a vital role in the socio economic development and national fiscals in any country. Usually it provides a considerable share towards the Gross Domestic Product (GDP) and Gross National Product (GNP) of the economy. Further it helps to bring lot of development goals for any country such as providing infrastructure, technology, machinery, engineering services and employment opportunities. Construction industry is a highly booming sub sector in Sri Lankan economy. The sector alone has contributed 6.6% in 2009 to 8.7% in 2013 towards the overall GDP. Therefore it has indicted a significant impact to the economy of the country. This study helps to understand mathematical relationships between construction industry and economy in an investor perspective and economic policy development standpoint. Also it helps to evaluate the structures of government policies, their effectiveness as well as direct and indirect impact of social wellbeing in the country. This study focuses on the causality relationship between the developments of construction activities and the GDP Growth in Sri Lanka. It describes as a country how construction activities have been responded to the trend of national economy and vice versa. Empirical data of economic indicators and construction index were used to determine the Granger Causality Test for the period of 1990 to 2013. Therefore, it checked the associations between national economic statistics and construction activates in Sri Lanka specially to identify unidirectional and bidirectional relationships among the variables as well as short term and long term relationships. The research reveals the Balance of Trade (BOT) has a relationship between previous year Gross Domestic Products (GDP) and a year before. Also it reveals that All Construction Cost Index (ACINDEX) has an impact on last three year GDP figures, Construction sector Gross Domestic Product (CGDP) figures and BOT. Therefore it can confirm a strong relationship between construction activities and economic growth in Sri Lanka.