The Driving Force behind the Boom and Bust in Construction in Europe

By Yan M Sun, Pritha Mitra, Alejandro Simone

August 21, 2013

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Format: Chicago

Yan M Sun, Pritha Mitra, and Alejandro Simone. The Driving Force behind the Boom and Bust in Construction in Europe, (USA: International Monetary Fund, 2013) accessed November 23, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper studies the factors behind pro-cyclical but widely varying construction shares (as a percent of GDP) across countries, with a strong focus on European countries. Using a dataset covering 48 countries (including advanced and emerging economies within and outside Europe) for 1990-2011, we find that country’s geography, demographics, and economic conditions are the key determinants of a norm around which actual construction shares revolve in a simple AR(1) and error-correction process. The empirical results show that in many European countries, construction shares overshoot relative to their norms before the recent global crisis, but they have fallen significantly since the crisis. Nevertheless, there is still room for further adjustment in construction shares in some countries which may weigh on economic recovery.

Subject: Capital spending, Expenditure, Financial markets, Housing, Income, National accounts, Stock markets

Keywords: Adjustment dynamics of construction share, Adjustment in construction share, Business Cycle, Capital spending, Construction, Construction share, Construction share norm, Error-correction, Estimated construction share norm, Europe, European Growth, Housing, Income, Increase in construction share, Medium-term norm, Norm equation, Norm vis-a-vis, Share norm equation, Share of construction, Significance level, Stock markets, WP

Publication Details

Pages:

36
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2013/181
Stock No:

WPIEA2013181
ISBN:

9781484392485
ISSN:

1018-5941

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