Analysis of the causality links between the growth of the construction industry and the growth of the macro‐economy in Ghana

Abstract

A vibrant construction industry in a developing country, that mobilizes human and local material resources in the development and maintenance of buildings, housing and physical infrastructure, is an important means to promote increased local employment and accelerate economic growth. Ghana, a country of about 22 million people, currently has one of the fastest growing economies in West Africa. The Government of Ghana (GOG) has recently set a target of annual economic growth rate of 8% and above, up from annual growth rates of 5–6% in the past five years (2001–05). It intends to use the agricultural sector as the major vehicle for achieving such high growth rates in order for the country to reach the status of a middle income country by 2015. Surprisingly, the construction industry was left out from the list of major growth drivers of the economy. We contend that with the construction industry currently making up the third largest sector of the economy, special attention should be given to this industry as one of the main drivers of economic growth in Ghana. Therefore we conducted a study to analyse the causality links between the growth in the construction industry and the growth in the macro‐economy of Ghana, measured by the gross domestic product (GDP), to ascertain whether the construction industry can be used to lead the entire economy on a growth path. The analysis was based on a simple Granger causality test using time series data from 1968 to 2004. We showed that growth in the construction industry Granger‐caused growth in GDP, with a three‐year lag. The construction industry needs to be considered as one of the major drivers of economic growth in Ghana.