Construction Industry and Its Impact on the Economy

Only available on StudyMode
  • Download(s) : 65
  • Published : April 21, 2013
Open Document
Text Preview
Construction sector and construction activities are considered to be one of the major sources of economic growth, development and economic activities. Construction and engineering services industry play an important role in the economic uplift and development of the country. It can be regarded as a mechanism of generating the employment and offering job opportunities to millions of unskilled, semi-skilled and skilled work force. It also plays key role in generating income in both formal and informal sector. It supplements the foreign exchange earnings derived from trade in construction material and engineering services.

Unfortunately construction sector is one of the most neglected sectors in Kenya. Although the construction sector has only a 2.3 percent share in GDP, its share of the employed labor force was disproportionately large at 6.1 percent in FY07.

The construction sector is estimated to have grown by 17.2 percent in 2006-07 as against 5.7 percent of last year. The higher demand for construction workers is also reflected in a continued double-digit rise in their wages since FY05. Their wages increased by 11.1 percent in FY07. Keywords:

Construction Sector, GDP, Causal Relationship, Co-integration. 1. Introduction
The construction industry plays an essential role in the socio economic development of a country. The activities of the industry have great significance to the achievement of national socio-economic development goals of providing infrastructure, sanctuary and employment. It includes hospitals, schools, townships, offices, houses and other 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 all economic activities directed to the creation, renovation, repair or extension of fixed assets in the form of buildings, land improvements of an engineering nature. Besides, the construction industry generates substantial employment and provides a growth impetus to other sectors through backward and forward linkages. It is, essential therefore, that, this vital activity is nurtured for the healthy growth of the economy. The main purpose of this study is to see whether growth in construction industry actually caused the economic increase or, alternatively, did economic expansion strongly contribute to construction growth instead?

1.1 Global Distribution of Construction Output and Employment: Globally, construction industry is regarded as one of the largest fragmented industry. An estimate of annual global construction output is probably closer to U.S $ 4.5 trillion in 20041. The construction industry is also a prime source of employment generation offering job opportunities to millions of unskilled, semi-skilled and skilled work force. Global picture of construction output and employment in developing and developed countries can be seen in table -1 below. It can be seen from the table-1 that total construction output worldwide was estimated at just over $3,000 billion in 1998. Output is heavily concentrated (77 per cent) in the high income countries (Western Europe, North America, Japan and Australasia). The contribution of low and middle income countries was only 23 % of total world construction output (ILO Geneva2001).

The data in employment situation table 2 tells a rather different story so far as employment is concerned. It can be seen that there was an excess of 111 million construction workers worldwide in 1998 and most of them were in the low- and middle-income countries.

The distribution of construction employment is, in fact, almost the exact reverse of the distribution of output. The high-income countries produce 77 per cent of global construction output 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...
tracking img