RANKO BON REVISITED: THE VOLUME/SHARE RELATIONSHIP

misbe2011 Tracking Number 184

As described by Maddison, economic development has been characterized by “the bell shaped pattern of relative industrialization and de-industrialization”. In the early stages of economic development construction adds the physical capital utilized by the rest of the economy, but as the economy matures growth ceases to be extensive and becomes intensive in terms of physical capital. When manufacturing reaches maturity, so does construction. Hence the contribution to gross national product by both sectors starts declining, while services become the new engine of the economy. In this regard, Bon wrote that, at some point of economic development, the relative decline of construction is accompanied by the absolute decline of its production volume. In this paper we try to assess these relationships using the database provided by the United Nations Statistics Division that covers more than 2000 countries for years 1970-2008. This unbalanced panel isanalyzed using standard econometric techniques that should reveal the long term pattern betweenconstruction and growth. Keywords: Construction volume, gross national product, construction sector, econometric technique