Analysis of the causal relation between construction activity and the gross domestic product of two neighbouring economies : Portugal and Spain

It has long been recognised that the role of the construction industry in a country’s national economy goes beyond its share in national output. Using time–series data drawn from the United Nations national accounts databases, this study applies the econometric Granger causality methodology to investigate the relationship between construction activity, measured by the construction value added, and the Gross Domestic Product (GDP) of two neighbouring economies – Portugal and Spain. In a comparison basis, the paper intends to identify the existence of a causal relation between the construction sector and each one of the aggregate economies. In particular, it tries to verify if the construction activity contributes to economic growth and/or economic growth contributes to the dynamics of the construction industry activity in these two countries. For both countries is find evidence that GDP growth leads the growth in the construction sector, in the short and medium-run. The opposite is not observed.

VIVO