CONSTRUCTION AND ECONOMIC GROWTH IN SINGAPORE

Abstract

This paper begins with an account of the importance of the construction industry. In particular, using Singapore as a case study from 1960 to 1997, the role of the government in the construction industry is examined qualitatively. In the empirical section of the paper, the first part examines shares of construction and works in GDP and economic growth. From simple causality tests, there is no evidence that increases in the rate of construction precede increases in growth. Neither is there evidence that higher growth leads to more construction activity. In the second part of the empirical section, construction is disaggregated into public sector and private sector components. Unit root tests show that GDP and public sector construction is integrated of order one while private sector construction is possibly integrated of order zero. Further estimation of bivariate relationships between public sector construction and growth, as well as private sector construction and growth using the cointegration procedure of Engle and Granger (1987) shows that no long-run relationship exists. Thus, public sector construction neither causes economic growth nor is caused by it. The same can be said for private sector construction. Hence there is no evidence that construction is the only or main source of growth for Singapore.