Share:


Economic growth determinants in new and old EU countries with focus on construction

Abstract

Classical, neoclassical, institutional and other schools have debated what is crucial for economic growth. Literature review related to economic growth models is extensive. The objective of our paper is to construct a model of economic growth determinants in EU countries, with focus on construction. Our model includes determinants that reflect the impact of construction on economic growth, which is the contribution to existing literature. It has been created for three groups of countries: EU28, old EU and new EU countries. We believe that this has improved the quality of the results and enabled a comparative analysis of the old and new EU countries. In order to create a model, we used a strongly balanced panel of 28 EU countries in the period 1995–2019 and employed the difference-in-differences approach. Our results for EU28 confirm positive effect of industry, gross fixed capital formation, production in construction and cost construction index on GDP, while gross wages are statistically insignificant. FDIs have low negative impact on economic growth in EU28 and old EU, but statistically insignificant in new EU countries. CO2 is significant and positively correlated with economic growth in all countries. Based on empirical results, we propose policy relevance in concluding remarks.


First published online 21 October 2022

Keyword : economic growth, construction, gross domestic product, differences-in-difference approach, new EU countries, old EU countries

How to Cite
Žarković, M., Ćetković, J., Redzepagic, S., Đurović, G., Vujadinović, R., & Živković, A. (2022). Economic growth determinants in new and old EU countries with focus on construction. Technological and Economic Development of Economy, 28(6), 1622–1648. https://doi.org/10.3846/tede.2022.17598
Published in Issue
Nov 15, 2022
Abstract Views
161
PDF Downloads
149
Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.

References

Ahmad, M., Zhao, Z. Y., & Li, H. (2019). Revealing stylized empirical interactions among construction sector, urbanization, energy consumption, economic growth and CO2 emissions in China. Science of the Total Environment, 657, 1085–1098. https://doi.org/10.1016/j.scitotenv.2018.12.112

Aiyetan, O. A., & Dillip, D. (2018). System dynamics approach to mitigating skilled labour shortages in the construction industry: A South African context. Construction Economics and Building, 18(4), 45–63. https://doi.org/10.5130/AJCEB.v18i4.6041

Asteriou, D., & Spanos, K. (2019). The relationship between financial development and economic growth during the recent crisis: Evidence from the EU. Finance Research Letters, 28, 238–245. https://doi.org/10.1016/j.frl.2018.05.011

Athey, S., & Imbens, G. W. (2017). The state of applied econometrics: Causality and policy evaluation. Journal of Economic Perspectives, 31(2), 3–32. https://doi.org/10.1257/jep.31.2.3

Badalyan, G., Herzfeld, T., & Rajcaniova, M. (2014). Transport infrastructure and economic growth: Panel data approach for Armenia, Georgia and Turkey. Review of Agricultural and Applied Economics, 17(2), 22–31. https://doi.org/10.15414/raae.2014.17.02.22-31

Badulescu, D., Simut, R., Mester, I., Dzitac, S., Sehleanu, M., Bac, D. P., & Badulescu, A. (2021). Do economic growth and environment quality contribute to tourism development in EU countries? A panel data analysis. Technological and Economic Development of Economy, 27(6), 1509–1538. https://doi.org/10.3846/tede.2021.15781

Bell, D. N., & Blanchflower, D. G. (2018). The lack of wage growth and the falling NAIRU. National Institute Economic Review, 245, R40–R55. https://doi.org/10.1177/002795011824500114

Bengochea-Morancho, A., Higón-Tamarit, F., & Martínez-Zarzoso, I. (2001). Economic growth and CO2 emissions in the European Union. Environmental and Resource Economics, 19(2), 165–172. https://doi.org/10.1023/A:1011188401445

Błażejowski, M., Kwiatkowski, J., & Gazda, J. (2019). Sources of economic growth: A global perspective. Sustainability, 11(1), 275. https://doi.org/10.3390/su11010275

Blundell, R., & Dias, M. C. (2002). Alternative approaches to evaluation in empirical microeconomics. Portuguese Economic Journal, 1(2), 91–115. https://doi.org/10.1007/s10258-002-0010-3

Bogumil, P. (2014). Composition of capital inflows to Central and Eastern Europe (CEE) – is Poland different. ECFIN Country Focus, 11(8), 1–9.

Borensztein, E., De Gregorio, J., & Lee, J. W. (1998). How does foreign direct investment affect economic growth? Journal of International Economics, 45(1), 115–135. https://doi.org/10.1016/S0022-1996(97)00033-0

Branten, E., Lamo, A., & Room, T. (2018). Nominal wage rigidity in the EU countries before and after the Great Recession: Evidence from the WDN surveys (ECB Working Paper No. 2159). European Central Bank. https://doi.org/10.2866/298467

Bratsberg, B., & Raaum, O. (2012). Immigration and wages: Evidence from construction. The Economic Journal, 122(565), 1177–1205. https://doi.org/10.1111/j.1468-0297.2012.02540.x

Breitenlechner, M., Gächter, M., & Sindermann, F. (2015). The finance–growth nexus in crisis. Economics Letters, 132, 31–33. https://doi.org/10.1016/j.econlet.2015.04.014

Campos, N. F., Coricelli, F., & Moretti, L. (2019). Institutional integration and economic growth in Europe. Journal of Monetary Economics, 103, 88–104. https://doi.org/10.1016/j.jmoneco.2018.08.001

Carkovic, M., & Levine, R. (2005). Does foreign direct investment accelerate economic growth. In Does foreign direct investment promote development? (pp. 195–220). PIIE.

Ceric, A., & Ivic, I. (2020). Construction labor and skill shortages in Croatia: Causes and response strategies. Organization, Technology & Management in Construction: An International Journal, 12(1), 2232–2244. https://doi.org/10.2478/otmcj-2020-0019

Chen, J. J. (1998). The characteristics and current status of China’s construction industry. Construction Management & Economics, 16(6), 711–719. https://doi.org/10.1080/014461998372006

Chowdhury, A., & Mavrotas, G. (2006). FDI and growth: what causes what? World Economy, 29(1), 9–19. https://doi.org/10.1111/j.1467-9701.2006.00755.x

Coulson, N. E., & Kim, M. S. (2000). Residential investment, non‐residential investment and GDP. Real Estate Economics, 28(2), 233–247. https://doi.org/10.1111/1540-6229.00800

Craig, P. (2015). The financial crisis, the European Union institutional order, and constitutional responsibility. Indiana Journal of Global Legal Studies, 22(2), 243–267. https://doi.org/10.2979/indjglolegstu.22.2.243

Crescenzi, R., & Rodríguez‐Pose, A. (2012). Infrastructure and regional growth in the European Union. Papers in Regional Science, 91(3), 487–513. https://doi.org/10.1111/j.1435-5957.2012.00439.x

Crespo Cuaresma, J., Ritzberger-Grünwald, D., & Silgoner, M. A. (2008). Growth, convergence and EU membership. Applied Economics, 40(5), 643–656. https://doi.org/10.1080/00036840600749524

Dellis, K., Sondermann, D., & Vansteenkiste, I. (2017). Determinants of FDI inflows in advanced economies: Does the quality of economic structures matter? (ECB Working Paper No 2066). https://doi.org/10.2139/ssrn.2990996

Dimitras, A. I., Kyriakou, M. I., & Iatridis, G. (2015). Financial crisis, GDP variation and earnings management in Europe. Research in International Business and Finance, 34, 338–354. https://doi.org/10.1016/j.ribaf.2015.02.017

Dlamini, S. (2012, June). Relationship of construction sector to economic growth. In International Congress on Construction Management (pp. 213–224). Canada.

Dogan, E., & Aslan, A. (2017). Exploring the relationship among CO2 emissions, real GDP, energy consumption and tourism in the EU and candidate countries: Evidence from panel models robust to heterogeneity and cross-sectional dependence. Renewable and Sustainable Energy Reviews, 77, 239–245. https://doi.org/10.1016/j.rser.2017.03.111

Dritsakis, N., Varelas, E., & Adamopoulos, A. (2006). The main determinants of economic growth: An empirical investigation with Granger causality analysis for Greece. European Research Studies Journal, 9(3–4), 47–58.

Dustmann, C., Frattini, T., & Preston, I. P. (2013). The effect of immigration along the distribution of wages. Review of Economic Studies, 80(1), 145–173. https://doi.org/10.1093/restud/rds019

Ericsson, J., & Irandoust, M. (2004). The productivity-bias hypothesis and the PPP theorem: New evidence from panel vector autoregressive models. Japan and the World Economy, 16(2), 121–138. https://doi.org/10.1016/S0922-1425(03)00015-X

Erol, I., & Unal, U. (2015). Role of construction sector in economic growth: New evidence from Turkey. Munich Personal RePEc Archive, 68263.

European Commission. (2021). Internal Market, Industry, Entrepreneurship and SMEs. https://ec.europa.eu/growth/sectors/construction_en

European Construction Industry Federation. (2020). Statistical report, 63. https://fiec-statistical-report.eu/european-union

European Migration Network. (2015). Determining labour shortages and the need for labour migration from third countries in the EU: Synthesis report for the EMN focussed study 2015.

European Steel Association. (2021). Economic and steel market outlook 2020–2021. Economic Report. https://www.eurofer.eu/assets/Uploads/REPORT-Economic-and-Steel-Market-Outlook-Quarter-2-2020.pdf

Eurostat. (2020a). Construction sector. https://ec.europa.eu/eurostat/cache/digpub/housing_2020/bloc-3a.html?lang=en

Eurostat. (2020b). Fourth quarter of 2019. Euro indicators, 44/2020. https://ec.europa.eu/eurostat/documents/2995521/10542754/3-17032020-AP-EN.pdf/12063740-ea86-fdbc-1b92-adf30394cf5b#:~:text=by%20economic%20activity-,In%20the%20fourth%20quarter%20of%202019%20compared%20with%20the%20same,mainly)%20non%2D%20business%20economy

Eurostat. (2021a). Euro indicators, 24/2021. https://ec.europa.eu/eurostat/documents/portlet_file_entry/2995521/4-17022021-AP-EN.pdf/07ad2377-4b52-3e1a-2ddc-1345961b089f

Eurostat. (2021b). GDP main aggregates and employment estimates for fourth quarter 2019. Euro indicators, 41/2020. https://ec.europa.eu/eurostat/documents/2995521/10516829/2-10032020-AP-EN.pdf/1781f16a-60f8-ea95-66c9-57b19a75b776

Ewing, B. T., & Wang, Y. (2005). Single housing starts and macroeconomic activity: An application of generalized impulse response analysis. Applied Economics Letters, 12(3), 187–190. https://doi.org/10.1080/1350485052000337806

Fetahi-Vehapi, M., Sadiku, L., & Petkovski, M. (2015). Empirical analysis of the effects of trade openness on economic growth: An evidence for South East European countries. Procedia Economics and Finance, 19, 17–26. https://doi.org/10.1016/S2212-5671(15)00004-0

Galic, M., Nasir, A. R., Dolacek-Alduk, Z., & Bargstädt, H. J. (2014, June). Comparative analysis of the machine labor ratio for earth excavation in different economies. In Proceedings of the Creative Construction Conference (pp. 27–30). Opatija, Croatia.

Gardiner, R., & Hajek, P. (2020). Interactions among energy consumption, CO2, and economic development in European Union countries. Sustainable Development, 28(4), 723–740. https://doi.org/10.1002/sd.2023

Gibescu, O. (2010). Does the gross fixed capital formation represent a factor for supporting the economic growth? Munich Personal RePEc Archive, 50135.

Green, R. K. (1997). Follow the leader: how changes in residential and non‐residential investment predict changes in GDP. Real estate economics, 25(2), 253–270. https://doi.org/10.1111/1540-6229.00714

Gruneberg, S. L. (1997). Construction economics: An introduction. Macmillan International Higher Education. https://doi.org/10.1007/978-1-349-13998-9_1

Hayat, A. (2016). Foreign direct investment, institutional framework and economic growth. Munich Personal RePEc Archive, 79043.

Hillebrandt, P. M. (2000). Economic theory and the construction industry (3rd ed.). Macmillan Press. https://doi.org/10.1057/9780230372481_1

Hongyu, L., Park, Y.W., & Siqi, Z. (2002). The interaction between housing investment and economic growth in China. International Real Estate Review, 5(1), 40–60.

Huang, L., Krigsvoll, G., Johansen, F., Liu, Y., & Zhang, X. (2018). Carbon emission of global construction sector. Renewable and Sustainable Energy Reviews, 81, 1906–1916. https://doi.org/10.1016/j.rser.2017.06.001

Ive, G., & Gruneberg, S. (2000). The economics of the modern construction sector. Springer. https://doi.org/10.1057/9780230510913

Jackman, M. (2010). Investigating the relationship between residential construction and economic growth in a small developing country: The case of Barbados. International Real Estate Review, 13(1), 109–116. https://doi.org/10.53383/100121

Kargi, B. (2013). Interaction between the economic growth and the construction industry: A time series analysis on Turkey (2000–2012). Emerging Markets Journal, 3(1), 19–34. https://doi.org/10.5195/EMAJ.2013.37

Karimi, H., Taylor, T. R., Dadi, G. B., Goodrum, P. M., & Srinivasan, C. (2018). Impact of skilled labor availability on construction project cost performance. Journal of Construction Engineering and Management, 144(7), 04018057. https://doi.org/10.1061/(ASCE)CO.1943-7862.0001512

Kasman, A., & Duman, Y. S. (2015). CO2 emissions, economic growth, energy consumption, trade and urbanization in new EU member and candidate countries: A panel data analysis. Economic Modelling, 44, 97–103. https://doi.org/10.1016/j.econmod.2014.10.022

Khan, R. A. (2008, August). Role of construction sector in economic growth: Empirical evidence from Pakistan economy. First International Conference on Construction in Developing Countries (ICCID–IN), Karachi, Pakistan.

Kniivilä, M. (2007). Industrial development and economic growth: Implications for poverty reduction and income inequality. In Industrial development for the 21st century: Sustainable Development Perspectives (pp. 295–332). United Nations, Department of Social and Economic Affairs.

Kodrič, B., & Bregar, L. (2012). The sensitivity of capital services index on construction price indices. Economic Research-Ekonomska Istraživanja, 25(3), 666–689. https://doi.org/10.1080/1331677X.2012.11517528

Kolev, A., Tanayama, T., & Wagenvoort, R. (2013). Investment and investment finance in Europe. European Investment Bank.

Lacis, A. A., Schmidt, G. A., Rind, D., & Ruedy, R. A. (2010). Atmospheric CO2: Principal control knob governing Earth’s temperature. Science, 330(6002), 356–359. https://doi.org/10.1126/science.1190653

Lapinskienė, G., Tvaronavičienė, M., & Vaitkus, P. (2014). Greenhouse gases emissions and economic growth – evidence substantiating the presence of environmental Kuznets curve in the EU. Technological and Economic Development of Economy, 20(1), 65–78. https://doi.org/10.3846/20294913.2014.881434

Lean, C. S. (2001). Empirical tests to discern linkages between construction and other economic sectors in Singapore. Construction Management & Economics, 19(4), 355–363. https://doi.org/10.1080/01446190010022686

Li, X., & Liu, X. (2005). Foreign direct investment and economic growth: An increasingly endogenous relationship. World Development, 33(3), 393–407. https://doi.org/10.1016/j.worlddev.2004.11.001

Lopes, J., Ruddock, L., & Ribeiro, F. L. (2002). Investment in construction and economic growth in developing countries. Building Research & Information, 30(3), 152–159. https://doi.org/10.1080/09613210110114028

Lucas Jr, R. E. (1988). On the mechanics of economic development. Journal of Monetary Economics, 22(1), 3–42. https://doi.org/10.1016/0304-3932(88)90168-7

Lymonova, E. (2019). Estimation of the effect of taxes and gross fixed capital formation on economic growth of euro area. Akademіchnij ogljad, 1(50), 5–14. https://doi.org/10.32342/2074-5354-2019-1-50-1

Lyroudi, K., Papanastasiou, J., & Vamvakidis, A. (2004). Foreign direct investment and economic growth in transition economies. South-Eastern Europe Journal of Economics, 2(1), 97–110.

Mardani, A., Streimikiene, D., Cavallaro, F., Loganathan, N., & Khoshnoudi, M. (2019). Carbon dioxide (CO2) emissions and economic growth: A systematic review of two decades of research from 1995 to 2017. Science of the Total Environment, 649, 31–49. https://doi.org/10.1016/j.scitotenv.2018.08.229

Matousek, R., Rughoo, A., Sarantis, N., & Assaf, A. G. (2015). Bank performance and convergence during the financial crisis: Evidence from the “old” European Union and Eurozone. Journal of Banking & Finance, 52, 208–216. https://doi.org/10.1016/j.jbankfin.2014.08.012

Mavridis, S. C., & Vatalis, K. I. (2015). Investment in construction and economic growth in Greece. Procedia Economics and Finance, 24, 386–394. https://doi.org/10.1016/S2212-5671(15)00687-5

Myers, D. (2016). Construction economics: A new approach (4th ed.). Routledge. https://doi.org/10.4324/9781315645698

Naciążek, B. (2015). What is a zero energy house and zero energy plus house in the sustainable building. Construction Guide.

Nguyen, P. T., & Nguyen, Q. L. H. T. T. (2020). Critical factors affecting construction price index: An integrated fuzzy logic and analytical hierarchy process. The Journal of Asian Finance, Economics, and Business, 7(8), 197–204. https://doi.org/10.13106/jafeb.2020.vol7.no8.197

Palmer, P. I., Wilson, E. L., Villanueva, G., Liuzzi, G., Feng, L., DiGregorio, A. J., Mao, J., Ott, L., & Duncan, B. (2019). Potential improvements in global carbon flux estimates from a network of laser heterodyne radiometer measurements of column carbon dioxide. Atmospheric Measurement Techniques, 12(4), 2579–2594. https://doi.org/10.5194/amt-12-2579-2019

Pheng, L. S., & Hou, L. S. (2019). The economy and the construction industry. In Construction quality and the economy (pp. 21–54). Springer. https://doi.org/10.1007/978-981-13-5847-0_2

Ramachandra, T., Bharath, H. A., Vinay, S., Joshi, N. V., Kumar, U., & Rao, K. V. (2013a, November). Modelling urban revolution in greater Bangalore, India. In 30th Annual In-House Symposium on Space Science and Technology, ISRO-IISc Space Technology Cell, Indian Institute of Science (pp. 7–8). Bangalore.

Ramachandra, T., Rotimi, J. O. B., & Rameezdeen, R. (2013b). Direction of the causal relationship between construction and the national economy of Sri Lanka. Journal of Construction in Developing Countries, 18(2), 49–63.

Rameezdeen, R. (2007). Image of the construction industry. In M. Sexton, K. Kahkonen, & S. L. Lu (Eds.), CIB priority theme – Revaluing construction: A W065 “Organization and management of construction” perspective (pp. 76–87). CIB, International Council for Research and Innovation in Building and Construction.

Rapacki, R., & Próchniak, M. (2009). The EU enlargement and economic growth in the CEE new member countries (No. 367). Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.

Ruddock, L., & Lopes, J. (2006). The construction sector and economic development: The “Bon curve”. Construction Management and Economics, 24(7), 717–723. https://doi.org/10.1080/01446190500435218

Sabir, S., Rafique, A., & Abbas, K. (2019). Institutions and FDI: evidence from developed and developing countries. Financial Innovation, 5(1), 1–20. https://doi.org/10.1186/s40854-019-0123-7

Saidi, K., & Hammami, S. (2015). The impact of CO2 emissions and economic growth on energy consumption in 58 countries. Energy Reports, 1, 62–70. https://doi.org/10.1016/j.egyr.2015.01.003

Şenalp, B. (2019). FDI and economic growth: The role of economic freedom. İktisat Politikası Araştırmaları Dergisi, 6(1), 54–73.

Simionescu, M. (2016). The relation between economic growth and foreign direct investment during the economic crisis in the European Union. Zbornik radova Ekonomskog fakulteta u Rijeci: časopis za ekonomsku teoriju i praksu, 34(1), 187–213. https://doi.org/10.18045/zbefri.2016.1.187

Simionescu, M., Lazányi, K., Sopková, G., Dobeš, K., & Balcerzak, A. P. (2017). Determinants of economic growth in V4 countries and Romania. Journal of Competitiveness, 9(1), 103–116. https://doi.org/10.7441/joc.2017.01.07

Snieška, V., & Bruneckienė, J. (2009). Measurement of Lithuanian regions by regional competitiveness index. Inžinerinė ekonomika-Engineering Economics, 61(1), 45–57.

Staehr, K. (2010). The global financial crisis and public finances in the new EU countries from Central and Eastern Europe (Working Paper Series 2/2010). Bank of Estonia. https://haldus.eestipank.ee/sites/default/files/publication/en/WorkingPapers/2010/_wp_210.pdf

Stanišić, N. (2008). Do foreign direct investments increase the economic growth of Southeastern European transition economies? South-Eastern Europe Journal of Economics, 6(1), 29–38.

Stasiak-Betlejewska, R., & Potkány, M. (2015). Construction costs analysis and its importance to the economy. Procedia Economics and Finance, 34, 35–42. https://doi.org/10.1016/S2212-5671(15)01598-1

United Nations. (2021). International recommendations for construction statistics. Statistical papers Series M, 47/Rev.1. https://unstats.un.org/unsd/distributive_trade/SeriesM_47rev1E.pdf

United Nations Environment Programme. (2020). 2020 global status report for buildings and construction: Towards a zero-emission, efficient and resilient buildings and construction sector. Nairobi. https://globalabc.org/sites/default/files/inline-files/2020%20Buildings%20GSR_FULL%20REPORT.pdf

United Nations Framework Convention on Climate Change. (2015). Paris Agreement. https://unfccc.int/files/essential_background/convention/application/pdf/english_paris_agreement.pdf

Vlahinić Lenz, N., Pavlić Skender, H., & Mirković, P. A. (2018). The macroeconomic effects of transport infrastructure on economic growth: The case of Central and Eastern EU member states. Economic research-Ekonomska istraživanja, 31(1), 1953–1964. https://doi.org/10.1080/1331677X.2018.1523740

Wibowo, A. (2009). The contribution of the construction industry to the economy of Indonesia: A systemic approach. In International Seminar CIB (Vol. 107). UTM Malaysia.

Wigren, R., & Wilhelmsson, M. (2007). Construction investments and economic growth in Western Europe. Journal of Policy Modeling, 29(3), 439–451. https://doi.org/10.1016/j.jpolmod.2006.10.001

Wilhelmsson, M., & Wigren, R. (2011). The robustness of the causal and economic relationship between construction flows and economic growth: Evidence from Western Europe. Applied Economics, 43(7), 891–900. https://doi.org/10.1080/00036840802600020

Wong, J. M., Chiang, Y. H., & Ng, T. S. (2008). Construction and economic development: the case of Hong Kong. Construction Management and Economics, 26(8), 815–826. https://doi.org/10.1080/01446190802189927

World Business Council for Sustainable Development. (2021). Net-zero buildings: Where do we stand? https://www.wbcsd.org/contentwbc/download/12446/185553/1