Assessing the Impact of Construction Sector Growth on Economic Stability in Albania
DOI:
https://doi.org/10.54536/ajebi.v4i2.5227Keywords:
Construction Investment, Economic Growth, Granger Causality, Macroeconomic StabilityAbstract
This study focuses on the macroeconomic dimension of construction investment in Albania and aims to explore the impact of construction investments on Gross Domestic Product (GDP) growth, inflation, and unemployment. Although construction investment is typically viewed as an engine of economic activity, its actual impact on macroeconomic stability is still questionable. Using econometric modelling techniques (including adjusted R-squared and the Granger causality tests), this study illuminates the extent to which construction investment can drive growth and stability in an economy. The regression analysis illustrated that construction investment to GDP does not have statistically significant statistical effect on the GDP growth, inflation and employment levels as the adjusted R-squared turned out to be -0.046. These results indicate that, despite the construction sector’s significant contribution to employment generation, its influence on more general economic indicators remains weak when considering the effects of other economic sectors. Moreover, the absence of a Granger causality between construction investment and the main macroeconomic factors reverses the assumption of construction investment as a sole key factor that drives stability in the economy. The data did not support the study’s first hypothesis (H1), which suggested a positive effect of construction on GDP. Likewise, the second hypothesis (H2) that construction investment and inflation are related was also not supported. The third hypothesis (H3) that an expansion of the construction sector reduces unemployment was also not found not being supported by the empirical data. The implicit criticism is that although the business climate remains stable, the country faces economic challenges. Although construction is still an important part of the economy, other aspects such as fiscal policy, FDI and the labor market contribute more to the broader macroeconomic picture in the country.
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