Causal relationship between construction flows and GDP: evidence from Hong Kong

Granger causality methodology is used to investigate lead-lag relationships between construction activity and aggregate economy. Using data from Hong Kong, the results of this paper suggest strongly that the GDP tends to lead the construction flow not vice versa. Our finding is contrary to the view that construction is more volatile than the GDP. However, our results show that the construction volatility after 1990 is smaller than that in the period 1983-1989, a result that is particularly important for policymakers in that it is the macroeconomic policy of government that affects output, and influences the construction activity, and not vice versa.