INTER-RELATIONSHIP OF RESIDENTIAL AND NON-RESIDENTIAL INVESTMENT WITH GDP

Abstract

This study sets out to examine the inter-relationship between residential and non¬ residential investment with Gross Domestic Product (GDP). Specifically, if the finding by Green (1997) that residential investment leads GDP can be established in Singapore, this study will signal to policy makers that residential investment can be used as an alternative fiscal tool other than the manufacturing and services sectors to lead the economy out of a downturn. Econometric techniques of cointegration and Granger causality tests were conducted to investigate the existence of this relationship. This research found that the lead-lag relationship of residential investment and GDP as suggested by Green (1997) does not exist in Singapore. However, it confirms Green's (1997) finding that GDP causes non-residential investment. This suggests that non-residential investment is closely linked to the economy. When the relationship between public and private residential investment and GDP was examined, no causal relationship can be established between both investment and GDP in either direction. This is despite the fact that private residential investment shared a long term relationship with GDP as indicated by the cointegration test. Finally, public and private residential investment showed that they cause one another in the causality tests. This suggests that movements in either investment would affect the other. Original from