Does building investment affect economic growth?

Summary

Building investment has been identified as both a major determinant of, and a brake on, economic growth, results which are based on conflicting evidence drawn from a cross‐section of countries in the post‐1950 era. In contrast, this paper looks at the very long run, using annual UK data from the nineteenth century to the present day. Tests for cointegration and Granger Causality indicate a complex pattern of causality between equipment and structures investment and aggregate productivity. There seems to be a long‐run steady state relationship and a series of error correcting mechanisms; results which do not support a policy of preferential treatment for equipment investment.

Growth:

• investment
• productivity change
• building cycles

Notes

We should like to thank the Joseph Rowntree Foundation for financially supporting this research, and Jerry Coakley, Hugh Davies and Ron Smith for then‐ comments. The opinions expressed and any errors remaining are the responsibility of the authors alone.