Linkages in the Construction Sector Karen R. Polenske and Petros Sivitanides Why look at construction linkages?Backward and Forward Linkages in a NutshellLinkage MeasuresFactors of VariationDirect Backward Linkage Total Backward LinkagePower of DispersionCoefficient of Variation for Backward LinkagesMIT OpenCourseWarehttp://ocw.mit.edu 11.481J / 1.284J / ESD.192J Analyzing and Accounting for Regional Economic Growth Spring 2009 For information about citing these materials or our Terms of Use, visit: http://ocw.mit.edu/terms.Linkages in the Construction Sector Karen R. Polenske and Petros Sivitanides Based on a presentation by Anne Schwieger, modified by Karen R. Polenske Full citation: Karen R. Polenske and Petros Sivitanides. 1990. "Linkages in the Construction Sector." The Annals of Regional Science, 24 (2): 147-161.Why look at construction linkages? • Vital sector in any economy – Provides public infrastructure as well as private physical structures for productive activities (industry, service, commerce, utilities, etc) • Construction investment can be an important public policy tool – Used by central and local government alike to accelerate development, create employment during periods of recession or slow economic growthBackward and Forward Linkages in a Nutshell • Backward linkages: relationship of interindustry purchases to total purchases • Forward linkages: relationship of interindustry sales to total outputLinkage Measures Eight most commonly used linkage measures: 1. Direct backward linkage 2. Direct forward linkage 3. Total backward linkage 4. Total forward linkage 5. Power of dispersion 6. Sensitivity of dispersion 7. Coefficient of variation for backward linkages 8. Coefficient of variation for forward linkagesFactors of Variation Why do backward linkages differ among countries and over time? There are variations in • Product mix • Relative prices of construction inputs • Construction technologies Although there is not a sufficient amount of data to standardize these factors of variation, there are other ways to assess the strength and nature of construction backward linkages… Examine backward and forward linkagemeasures for aggregate constructionsector in a number of countries and over time!Direct Backward Linkage • The higher the backward linkage of a sector, the more important that sector in promoting economic growth • A value of .68 for Japan in 1960 indicates that in this year, intermediate inputs into the construction industry were 68% of Japan’s total construction output • The Rank column indicates that construction is always in the top half of sectors generating large backward linkages • Shows the proportion of total inputs of a sector accounted for by its intermediate inputs Author Country Year Direct backward linkages*Construction linkageAll sectors linkagevalueValue Rank** Minimum MaximumDelmar IrelandDelmarZlaouiZlaouiDelmarZlaouiZlaoui1956196919641968198219741978Panchamukhi IndiaPanchamukhiPanchamukhiPanchamukhiPanchamukhiPanchamukhiIndonesiaMalaysiaPhilippinesKoreaSri Lanka1973196919651965196619650.390.410.430.440.500.400.510.5150.6180.6470.5370.6120.4294/63/63/114/112/64/114/1140/6617/4213/3015/5113/4318/420.200.170.190.160.050.180.170.0450.0500.0040.000.0110.0210.720.740.720.770.700.750.750.8560.8910.9700.7300.8780.950*Direct backward linkage is defined as the ratio of intermediate inputs for sector j over the total inputs for that sector**Sectors ranked in descending orderMinami JapanMinamiMinamiMinamiMinami196019651970197519800.680.620.620.560.572/62/62/63/63/60.220.210.220.230.230.720.700.690.700.71Bon, Zlaoui USABon, ZlaouiBon, ZlaouiBon, ZlaouiBon, ZlaouiBon, Zlaoui1947195819631967197219770.590.580.570.560.540.582/72/73/73/73/73/70.280.290.290.280.280.320.620.610.600.600.620.64Construction Direct Backward Linkages in Developed and Developing CountriesFigure by MIT OpenCourseWare.Total Backward Linkage • Measures the total direct and indirect effects associated with a change in final demand for a given sector • A high value indicates large direct and indirect effects of increase in final demand for output of a sector • Total measure for countries with more than one year of data show same tendencies as direct backward linkage measure •Comparative rankings column shows that the total backward linkage is very high for construction compared with other sectors Author Country Year Total backward linkages*Construction linkageAll sectors linkagevalueValue Rank** Minimum MaximumAcharya and HazariAcharya and HazariIndia 1963 2.23 1/20 1.19 2.23India 196319622.05*** 1/20 1.02 2.05W. PakistanW. Pakistan2.02 5/20 1.36 2.631962 1.44*** 3/20 0.30 1.74Acharya and Hazari1962E. PakistanE. Pakistan1.53 11/20 1.00 1.991962 1.34*** 5/20 0.29 1.54RiedelRiedel1969TaiwanTaiwan2.226 14/25 1.242 3.1341969 1.878*** 4/25 0.091 2.003Miller & Blair Miller & Blair Miller & Blair Miller & Blair Miller & BlairMiller & Blair1947USAIrelandJapanDevelopedLDC2.220 2/7 1.524 2.3191958 2.204 2/7 1.563 2.2861963 2.156 3/7 1.523 2.2721967 2.127 3/7 1.538 2.2391964 1.658 4/11 1.284 2.3251968 1.742 5/11 1.307 2.4491974 1.694 5/11 1.318 2.3641978 1.811 3/11 1.156 2.2381972 2.085 3/7 1.108 2.2951977 2.208 3/7 1.144 2.3541960 2.70 1/6 1.47 2.701965 2.34 2/6 1.46 2.541970 2.43 2/6 1.47 2.551975 2.35 2/6 1.49 2.641980 2.43 3/6 1.52 2.762.090 9/18 1.617 2.4252.042 10/18 1.493 2.393Zlaoui Zlaoui Zlaoui ZlaouiMinami MinamiMinamiMinamiMinamiYotopoulos andNugentYotopoulos andNugent*Total backward linkages are the column sums of the (I - A)-1 matrix, where I is the identity matrix and A is the input-coefficient order**Sectors ranked in descending order***These total backward linkage measures were obtained by using the (I - A + m)-1 matrix where m, the import coefficient for each sector, is equal to the ratio of its imports over its gross domestic outputLDC = Less-developed countriesConstruction Total Backward Linkages in Developed and Developing CountriesFigure by MIT OpenCourseWare.Power of Dispersion • Shows the relative extent to which an increase in final demand for products of a sector are dispersed throughout the system of sectors • Laumas (1976) contends that of all measures one can use to describe backward linkages, the power of dispersion measure is the most appropriate for intercountry comparisons • A value >1 indicates that the country has a greater than average backward linkage • The