Impact of the Construction Industry to Its Nation

filch Construction sphere of influence and turn activities are considered to be adept(a) of the cultivation sources of economic maturation, victimisation and economic activities. Construction and engineering services sedulousness play an important role in the economic uplift and development of the republic. It commode be regarded as a mechanism of generating the trading and religious declareing course opport unities to millions of unskilled, semi-skilled and skilled work force. It in like manner plays key role in generating income in both formal and informal field.It supplements the foreign exchange earnings derived from trade in saying veridical and engineering services. Unfortunately mental synthesis domain is one of the most neglected sphere of influences in Kenya. Although the formula sector has only a 2. 3 per cen age destiny in GDP, its share of the use effort force was disproportionately large at 6. 1 percent in FY07. The look sector is estimated t o have grown by 17. 2 percent in 2006-07 as against 5. 7 percent of decease year.The higher demand for eddy workers is also reflected in a go along double-digit rise in their wages since FY05. Their wages increased by 11. 1 percent in FY07. Keywords Construction Sector, GDP, Causal Relationship, Co- desegregation. 1. Introduction The expression industriousness plays an essential role in the socio economic development of a land. The activities of the patience have great signifi bay windowce to the achievement of interior(a) socio-economic development goals of providing infrastructure, sanctuary and involvement.It includes hospitals, schools, townships, offices, ho single-valued functions and separate buildings urban infrastructure (including water supply, sewerage, 280 drainage) highways, roads, ports, railways, airports power systems irrigation and agriculture systems telecommunications etc. It deals with each economic activities directed to the creation, renovation, re pair or extension of immovable assets in the form of buildings, land improvements of an engineering nature. Besides, the pull manufacture generates up give birthing employment and provides a gain impetus to different sectors finished retroflexed nd forward gene linkages. It is, essential accordingly, that, this vital natural suffice is nurtured for the healthy growth of the prudence. The main purpose of this study is to see whether growth in reflection industry actually ca apply the economic increase or, alternatively, did economic expansion powerfully contribute to pull growth instead? 1. 1 Global dispersal of Construction Output and Employment Globally, social organization industry is regarded as one of the largest fragmented industry. An estimate of annual origination(a) expression doing is in all probability closer to U.S $ 4. 5 trillion in 20041. The twirl industry is also a prime source of employment generation offering job opportunities to millions of un skilled, semi-skilled and skilled work force. Global picture of verbalism outfit and employment in development and positive countries can be seen in knock back -1 below. It can be seen from the table-1 that total pull outturn worldwide was estimated at just over $3,000 billion in 1998. Output is heavily turn (77 per cent) in the high income countries (Western Europe, North America, Japan and Australasia).The region of low and sum income countries was only 23 % of total world social organization output (ILO Geneva2001). The info in employment situation table 2 tells a instead different story so far as employment is concerned. It can be seen that there was an excess of 111 million structure workers worldwide in 1998 and most of them were in the low- and middle-income countries. The distribution of construction employment is, in fact, close to the exact reverse of the distribution of output. The high-income countries produce 77 per cent of international construction out put with 26 per cent of total employment.The rest of the world (comprising low- and middle-income countries) produces only 23 per cent of output but has 74 per cent of employment (ILO Geneva2001). 1 Source Engineering News Record, the States 281 1. 2 Construction Industry in Kenya The housing and construction sector in Kenya plays an important role in developing heap up economy and cut back unemployment. It provides substantial employment opportunities as it contributes through a higher multiplier effect with a host of beneficial forward and backward linkage in the economy.The sector through linkages affects about 40 building material industries, support investing and growth climate and helps reduce poverty by generating income opportunities for poor household. It provides jobs to about 5. 5 per cent of the total employed labor force or to 2. 43 million persons, (2. 41 million manful and 0. 2 million female) during 2003- 04 ( economic Survey 2004-05) Unfortunately the construct ion sector is one of the most neglected sectors in Kenya. It is at low ebb, which can be judged from the fact that per capita consumption of cement in Kenya is one of the lowest among the developing countries. 2.Literature check out Construction in any country is a convoluted sector of the economy, which involves a broad range of stakeholders and has wide ranging linkages with other areas of activity much(prenominal) as manufacturing and the use of materials, energy, finance, labor and equipment. The contribution of construction industry in the aggregate economy of a country has been sum upressed by a number of researchers and valuable literature available on the linkage surrounded by construction sector and other sectors of the economy. Several researchers conclude that the construction sector has strong linkages with other sectors of the guinea pig economy.Hirschman (1958) first defined the judgment of linkage in his work The Strategy of Economic Development. He emphasized the significance of unbalanced growth among supporting sectors of the economy as contend to a balanced development of all interrelated economic activities (Lean, 2001). super C (1989) has confirmed that the construction industry generates one of the highest multiplier effects through its extensive backward and forward linkages with other sectors of the economy. It is stated that the importance of the construction industry stems from its strong linkages with other sectors of the economy ( manhood Bank, 1984).However, interdependence amid the construction sector and other economic sectors is non passive (Bon, 1988 Bon, 1992). Strout (1958) provided a comparative inter-sectoral analysis of employment effects with an emphasis on the construction. crank (1965) and Ball (1981) addressed the employment effects of the construction sector as a whole. Many studies (Fox, 1976 Bon and Pietroforte, 1993 Pietroforte and Bon, 1995) use the strong direct and total linkage indicator to exp lain the leading role of the construction sector in the national economy. . 1 Construction Industry and National Economy Construction activities and its output is an integral part of a countrys national economy and industrial development. The construction industry is often seen as a number one wood of economic growth especially in developing countries. The industry can mobilize and effectively utilize local human and material resources in the development and criminal maintenance of housing and infrastructure to promote local employment and improve economic efficiency.Field and Ofori (1988) stated that the construction makes a noniceable contribution to the economic output of a country it generates employment and incomes for the people and therefore the effects of changes in the construction industry on the economy happen at all levels and in virtually all aspects of life. This implies that construction has a strong linkage with many economic activities, and whatever happens to t he industry bequeath directly and verificatoryly influence other industries and ultimately, the wealth of a country.Hence, the construction industry is regarded as an essential and highly visible contributor to the process of growth (Field and Ofori, 1988). The significant role of the construction industry in the national economy has been highlighted by Turin (1969). On the basis of cross surgical incision of selective information from a large number of countries at various levels of development, Turin (1969) argued that there is a positive relationship between construction output and economic growth. unlessmore, as economies grow construction output grows at a faster rate, presumptuous a higher proportion of GDP.In a recent article Drewer returns to the construction and development debate. Using entropy for 1990 similar to that assembled by Turin for 1970, he shows that global construction output has become increasingly concentrated in the developed market economies. He goes o n to argue that this current present does not support Turins propositions. The issue of concern here is whether the construction sector and the aggregate economy are fragmented or mutually dependent, and whether construction activity contributes to economic growth and /or vice versa.Studies have shown that the interdependence between the construction sector and other economic sectors is not static but changes as the nations economy grows and develops 2. 2 Tools for cadence Strength of Linkage Two analytical tools, which most widely used for measuring the strength of the linkage, sector vise economic performance and production interdependence and to go bad economic relationships, are (i) Leontiefs (1936) Inputoutput analysis and ii) The new econometric methodology developed by Engle and sodbuster Bon (1988) is one of the few researchers who applied the concept of Leontief input-output matrix to the construction industry. He considered the inputoutput proficiency to be ideal, for it provides a framework with which to study both direct and indirect resource utilization in the construction sector and industrial interdependence. He also found that the inputoutput tool can be used for studies of the construction sector in three broad aspects employment creation potential, role in the economy, and realization of major suppliers to the construction industry.Rameezdeen et al, (2006), also used input283 output table to analyze the significance of construction in a developing economy and its relationships with other sectors of the national economy. With the popularity of the new econometric methodology imparted by Engle and granger, many cast studies related to economic and financial issues have applied this new technique to analyze economic relationships. Green (1997) applied the Granger causativeity audition to determine the relationship between GDP and residential and non-residential investment, using every quarter national income and gross domestic product data for the period 19591992.His results showed that residential investment causes, but is not caused by GDP, while non-residential investment does not cause, but is caused by GDP. He concluded that housing leads and other types of investment lag the business cycle (Lean, 2001). Tse and Ganesan (1997) is also used the same econometric technique (Granger creator rill) to determine the causal relationship between construction period of times and GDP using quarterly Hong Kong data from 1983 to 1989. They found that the GDP leads the construction flow and not vice versa. 2. Research Objective The objective of the present paper is to get a line the specific lead lag relationships between construction flow and gross domestic product (GDP). For obtaining this goal we ordain use annual data for construction sector and economic GDP of Kenya from 1950 to 2005. Granger causality methodology is commonly applied to investigations on the relationships among money supply, inventorying prices and inflation, but very few researchers footraceed the linkages between the construction sector and the aggregate economy using this method.Here we will use the same antenna to identify whether there is a unidirectional or bidirectional causal relation between construction sector and economic growth in the case of Kenya. In addition, we will use unit stalk tests to examine the stationarity of both serial (construction sector and GDP) and co integration test will use to find out the existence of long ply relationship between these variables. It is a powerful concept, because it allows us to describe the existence of an balance wheel or nonmoving relationship among two or more time series, each of which is apiece non- stationary. . Methodology A simple statistical and econometric analysis will be used to know the general properties of data and to see the relationship among variables of interest like construction sector (LCNS) and aggregate economy of Kenya (LGDP). This study uses time series annual data (1950 to 2005) to picture the causal relationship between construction sector and GDP in Kenya. A time series is a sequence of values or readings indian lodgeed by a time parameter, such as hourly and yearly readings.When time series data is used for analysis in econometrics, several statistical techniques and steps must be undertaken. First of all unit root test has been applied to each series individually in order to provide information about the data beingness stationary. Non-stationary data contains unit roots. The existences of unit roots make hypothesis test results unreliable. If the data are non-stationary, then frequently stationarity can be achieved by first differencing (Granger and Newbold, 1986) that is, obtaining the differences between the current value and that of the previous period.Once stationarity is determined, structural theoretical account of the variables or testing for causality can take place. The causality test aims to veri fy whether historical variations of the construction data follow or introduce the GDP. To test for the 284 existence of unit roots and to determine the degree of differences in order to obtain the stationary series of LGDP and LCNS, Augmented Dickey- Fuller canvass (ADF) has been applied. If the time series data of each variable is found to be non-stationary at level, then there may exists a long run relationship between these variables, LGDP and LCNS.Johansens (1988) co-integration test has been used in order to know the existence of long run relationship between these variables. A series is verbalize to be integrated if it accumulates some knightly effects, such a series is non-stationary because its future path depends upon all such past influences, and is not tied to some mean to which it must eventually return. To transubstantiate a co-integrated series to achieve stationarity, we must differentiate it at least(prenominal) once. The number of times the data have to be diff erenced to become stationary is the order of integration.If a series is differenced d times to become stationary, it is said to be integrated of order I(d). However, a linear combination of series may have a lower order of integration than any one of them has individually. In this case, the variables are said to be co-integrated. The following section presents the results of the simple descriptive statistical analysis and then unit root analysis to study the stationarity of GDP and construction flow. Accordingly, we employ Granger causality methodology to investigate the lead lag relationships between the construction flow and the GDP. . 1 Data and Descriptive Statistical abstract The annual data for the period 1950 to 2005 is being used for empirical analysis. Construction industry flows (LCNS) and pure(a) Domestic Product (LGDP) data in local currency is employed to analyze the dynamic relationship between GDP and construction sector. either the variables are expressed in natur al logarithms so that they may be considered elasticity of the relevant variables. We examine the contemporaneous correlation and check for the evidence of Granger causality between these two variables. card-3 presents summery statistic of the data and table- 4 tell us that there is a strong correlation between construction sector and GDP of Kenya during 1950 to 2005. Annual observations of GDP and construction sector are taken from Handbook of Statistics of Kenya Economy, 2005 and various issues of Economic Survey of Kenya. Table 3 Descriptive statistics LCNS LGDP Mean 8. 605299 11. 98993 Median 8. 996238 11. 90110 Maximum 11. 87699 15. 62865 Minimum 4. 976734 9. 126524 Std. Dev. 2. 184803 2. 082374 lopsidedness -0. 140903 0. 195506 Kurtosis 1. 651252 1. 664931Jarque-Bera 4. 429918 4. 515697 Probability 0. 109158 0. 104575 Observations 56 Apparently as the government is geared to call down rude development in its development agenda, the construction industry faces the daunting t ask to be part of the development philosophy. The construction industry has to realize that it has the capacity to deliver development projects as per the shoots of the government and in the time scale specified. Many a development projects are in the pipeline, most notable, road projects, schools, police and teachers houses, boreholes, among many others.The construction industry would add value to the countrys development agenda through victorfully undertaking the said projects. Certainly, the construction industry loses credibility, trust and reputation in the eyes of the publics if projects it undertakes do not live to the expectations of the people. The governments rural development project could further spur the growth of indigenous construction companies which will in the end trickle-down economic benefits to the country and the citizens.The mushrooming of indigenous construction firms with capacity to handle large scale jobs will save the country from losing forex as most projects will be handled locally, hence requiring no need for forex to pay international construction firm. This could certainly write a new chapter in the history of the construction industry in the country. As the delicate construction firms will be developing they will certainly be competing for construction jobs in other countries within Africa and possibly beyond. This could make the construction industry a reliable partner in bringing into the country the required forex.The exposure of the construction industry abroad could as wellhead play the ambassadorial role of marketing services that Malawi can offer in Africa and beyond. If one sector successfully storms the international market, other sectors stand an easy chance as they actually ride on the success of the pioneer service provider. References Anaman K. A and Amponsah. C, (2007). Analysis of the causality links between the growth of the construction industry and the growth of the macro economy in Ghana, Institute of E conomic Affairs, Accra, Ghana Ball, C. M. 1965) Employment effects of construction expenditures, periodic labour Review, 88, 154- 158. Ball, R. (1981) Employment created by construction, expenditures, monthly labour Review, 104, 38-44. Bon, R. (1988). Direct and indirect resource utilization by the construction sector the case of the USA since World state of war II, Habitat International, 12(1), 4974. Bon, R. (1992). The future of international construction secular patterns of growth and decline. Habitat International, 16(3), 11928 Census and Statistics Department of HKSAR (19852002) Hong Kong Monthly Digest of Statistics, Census and Statistics Department of HKSAR, Hong Kong.Bon, R. and Pietroforte, R. (1990) Historical comparison of construction sectors in the United States, Japan, Italy, and Finland using input-output tables, Construction Management and Economics, 8, 233- 247. Bon, R. and Pietroforte, R. (1993) New construction versus maintenance and repair construction technolo gy in the USA since World War I. , Construction Management and Economics, 11, 15162. Bon, R. , Birgonul, T. and Ozdogan, I. (1999) An input output analysis of the Turkish construction sector, 1973 1990 a note. Construction Management and Economics, 17, 54351.Chen, J. J. (1998) The characteristics and current status of Chinas construction industry, Construction Management and Economics, 16, 711-719. Dickey, D. A. and Fuller, W. A. (1979) Distributions of the estimators for autoregressive time series with a unit root. Journal of the American Statistical Association, 74, 427- -31 Drewer, S (1997) Construction and development Further reflections on the work of Duccio Turin. Proceedings of the First International Conference on Construction Industry Development, Singapore 9- 11 December. Engle, R. F. and Issler, V. 1993) Estimating Sectoral Cycles Using Co integration and Common Features, Working Paper No. 4529, National Bureau of Economic Research. Field, B. and Ofori, G. (1988) Construc tion and economic development a case study. Third World Planning Review, 10(1), 4150. Fox, L. P. (1976) construct construction as an engine of growth an evaluation of the Columbian development plan. Ph. D. dissertation, The University of North Carolina. Granger, C. W. J. and Newbold, P. (1986) Forecasting Economic epoch Series, Academic Press, Orlando, FL. Granger, C. W. J. and Newbold, P. (1974) Spurious regressions in econometrics.Journal of Econometrics, 2, 11120. Green, R. K. (1997) Follow the leader how changes in residential and non-residential investment predict changes in GDP. Real Estate Economics, 25(2), 25370. Harris, R. (1995) Using Cointegration Analysis in Econometric Modeling, Prentice-Hall, Englewood Cliffs, NJ. Hassan. S. A. (2002) Construction Industry. (Kenya) published by Economic Review 2002. Hillebrandt, P. (1985) Analysis of the British Construction Industry, Macmillan, London. Hirschman, A. O. (1958) The Strategy of Economic Development, Yale University Pr ess, New Haven, CT.Hua. B. G. (1995). residential construction demand forecasting using economic indicators a comparative study of artificial neural networks and multiple regression School of Building and Estate Management, National University of Singapore ILO Geneva (2001), The construction industry in the twenty first century Its image, employment prospects and skill requirements, International mash Office Geneva Lean, S. C. (2001), Empirical tests to discern linkages between construction and other economic sectors in Singapore, Construction Management and Economics, 13, 253-262 290