Examining the causality link between construction and economic growth

Abstract

This dissertation looks at the causal relationship between various construction sectors and economic growth in Malta and analyses the direction of causality between the two variables. Additionally, the causality link between the two variables in Malta is compared with that of three EU countries according to the standard of living. In this study, Granger causality tests are performed in order to analyse this causal relationship. The main hypothesis addressed in this dissertation is that the relationship between the two variables tends to siphon off as the level of economic development of a country rises. The results presented indicate that the causal relationship does not necessarily differ according to the level of economic development. It was found that countries with a high level of economic development and low GDP growth experience bidirectional causality between construction and economic growth whereas countries with medium/low level of economic development and high GDP growth experience no causality between the two variables.