Implications of money supply and interest rate on construction flows: Evidence from a developing economy

MAHENDRA REDDY AND NEELESH GOUNDER, UNIVERSITY OF THE SOUTH PACIFIC, FIJI

Abstract: Developing country economies have been struggling to keep up their growth rate commensurate with the international benchmarks. Often the analysis of performance of the economies takes into account the stylized macroeconomic variables. In this study, we examine how one of the most important sector, the construction sector, affects growth and what its determinants are. The performance of the construction sector in any economy is one of the key indicators of the performance of the economy. There are a number studies that have provided for an empirical basis for the relationship between construction and a nations GDP. However, there are very few studies that examine the determinants of changes and volatility of construction activities in an economy. In this paper, we use time series econometric techniques to examine the factors that affect the determinants of construction flows. The analysis reveals that Money Supply and Interest Rates are critical for raising economic activity via its influence on the construction sector output. The results from this study can have major ramifications for use of monetary tools when managing an economy.
Keywords: Construction Flows, Gross Domestic Product, Money Supply, Interest Rate

Outlook 2008_Reddy_Gounder-Itemid=.pdf
Outlook 2008_Reddy_Gounder-Itemid=.pdf
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