Table of Contents

1.0 Introduction ............................................................................................................................... 2

2.0 Content/ Importance of construction Industry .......................................................................... 3

2.1 Growth of GDP ..................................................................................................................... 3

2.2 Increasing of Work Opportunity ........................................................................................... 5

2.3 Improvement of Socio-Economic Development ................................................................... 7

2.4 Investment ............................................................................................................................. 8

2.5 Improvement of Transport System ...................................................................................... 10

2.6 Tourism ............................................................................................................................... 12

3.0 Conclusion and Recommendation .......................................................................................... 15

4.0 References ............................................................................................................................... 16

List Of Figure

Figure 1-GDP Growth of Malaysian Economy vs Construction Industry:1974-2004 ................... 4

Figure 2-Parties Involved in Construction Sector ........................................................................... 6

Figure 3- Melaka ........................................................................................................................... 14

Figure 4-Arcos da Lapa, Rio de Janeiro ....................................................................................... 14

1
1.0 Introduction

According to Khairani (2011), MSIC 2000 and MIC 1972 (revised 1979) defined

construction industry as industry that involved in the work such as new construction, alteration,

repair and demolition. It also includes installation of any built -in equipment and machinery or any

installation of equipment and machinery that require alteration to the structure of the building.

Based on different status of development of a country, the construction industry will focus

in different perspectives or different region to improve or maintain the status as well as the

economy of the country. According to Khan (2008), the construction in developing country mostly

emphasis on new infrastructure road railways airports hospital school housing and other buildings

to improve the socio-economic development of the society. On the other hand, construction in

developed countries mostly focus on professional services and on maintenance and repair

construction as most of the buildings or infrastructures are fully developed in developed countries

(Ruddock, 2009, Bon and Bietroforte, 1999).

Therefore, construction industry able to contribute to the national economy of a country.

Developing country particularly require construction industry to improve the economy of the

country. Hence, this assignment will be focusing on the importance of construction industry to the

overall economy of the developing country.

2
2.0 Content/ Importance of construction Industry
This section will be describing on the importance of construction industry in overall economy of

a developing country. Each point is separated into different heading for better understanding.

2.1 Growth of GDP

Gross Domestic product (GDP) can be defined as the market value of all finished

goods and services that produced within a country in a year (Marginal Revolution

University, 2015). It is often used as a main indicator to indicate the health of the economy

of a country (Kramer, 2018). For example. When the real GDP grows, it indicates that the

people in the country has the capability to buy more goods or services or the people able

to get better goods and services compare to previous year which indicate the economy of a

country is getting better (Marginal Revolution University, 2015). This is also why GDP is

used to measure the health of the economy. Hence, the problem now is how construction

industry can stimulate the GDP growth of the developing countries?

Khairani (2011) stated that contribution of GDP to the economy in Malaysia by

the construction sector is still low compare to other sectors. However, he highlighted that

construction sector give vast contribution to other sectors. According to Jiang (2013),

construction industry has intimate relationship with various types of industries. It also can

be said that construction industry affects about every aspect in the economy which

ultimately stimulate the economic growth (Stasiak-Betlejewka & Potkany, 2015). For

example, Housing market plays an important role in boosting the economy (Weinlick,

2014). When people buy new homes, they will also make other big purchases such as

furniture and appliances. Hence, it will directly increase the GDP of a country through

these purchases. Thus, it can be concluded that the construction sector contributes to the

3
growth of the GDP of the country from both the purchase of new houses and home as well

as additional demand for goods and services from the people.

However, construction sector also highly dependent on the performance of the

economy of the country. Juan (2008) highlighted in his paper that the growth of

construction output follows the trend of the economy. The relationship can be shown in

Figure 1. When the economy is good, the construction sector reacts will grow. At the same

times, the growth of construction sector will change quickly and drop severely as well

when the economy is bad.

Figure 1-GDP Growth of Malaysian Economy vs Construction Industry:1974-2004

(CIDB, 2004)

4
2.2 Increasing of Work Opportunity

Construction sector is considered as a labor- intensive industry (Kamal,2012;

Durdyev & Ismail, 2012). As mentioned by Weinlick (2014), construction sector requires

wide ranges of services including the architect, engineers, building suppliers, electricians,

retailer and more. When the economy is good, it often provides a lot of job opportunities

to the people. This statement also supported by Khan & Liew & Ghazali (2014) stating that

construction sectors in Malaysia engaged about 1.02 million of people which is about 9.2%

of total available workforce in years 2010.

Other than those labors or professions that directly related in construction during

construction process, it also provides wide range of work opportunity to people that does

not directly related the construction field. Figure 2 shows the range of parties that directly

or indirectly related to the construction industry and how they linked together in the

construction sectors. The statement of providing wide range of work opportunity to other

non- construction related people also supported by Hillebrandt (1985) stating that the

construction is a complex sector of economy and involved not only stakeholders but also

extensive ranging connections with other area of activities. For example, manufacturing of

materials, involvement of professions such as bankers or financier to give advice in term

of money and more. There is also study that indicate that there is an interdependence

between the construction sector and other economic sectors (Jiang, 2013).

With the increasing of employment rate of a developing country, it able to improve

the socio-economic of the community as they will have the ability to fulfill their basic need

with their current income ((Stasiak-Betlejewka & Potkany ,2015; Khan & Liew &

Ghazali ,2014). According to Dakhil (2013), developing countries usually possess the

5
characteristic of unemployment or underemployment. Hence, construction industry

enables the unemployment rate of the country to be reduced.

Figure 2-Parties Involved in Construction Sector

(Dr. Phanulim, 2015)

6
2.3 Improvement of Socio-Economic Development

Construction industry also improve the social-economy development (Jiang, 2013;

Durdyey & Ismail,2012). According to Nation Governing Council (2010), NEPAD declare

socio-economic development can be defined as the constant improvement in the standard

of living and well-being of the people. Better socio-economic also means that people meet

their basic needs that are important to live a life of dignity. This includes access to quality

education, safe drinking water and good sanitation, proper housing and better health.

Construction industry able to provide shelter, infrastructure, employment to the

people to improve the quality of life the human being (Stasiak-Betlejewka & Potkany ,2015)

Construction of hospitals, clinics, educational institution, dam, reservoirs, water treatment

plants and etc help to improve the quality and the standard of the community. Hence, the

community can get their basic needs easier which also can be known as socio-economic

improvement. According to Khan & Liew & Ghazali (2014), construction sectors also

provide job opportunities, increasing income sources and reducing unemployment from the

society which improve the standard of living of the people. It also means that the level of

poverty will be decreased by the increasing amount of work opportunity. For a developing

country, the economy will only be developed with quality changes in the structure of

production and employment (Szirmai, 2015).

7
2.4 Investment

Before discussing on how construction provides investment opportunity to the

country, it is importance to understand how the total capital investment influence the

economic growth. For the economy to grow in a country, it can be improved through 2

ways which are capital goods structure and growing capital stock (Ross, 2018). The capital

stock is where the investment will come in. When there is an increase in capital investment,

the capital structure able to carry out more research and development (Ross, 2018). Ross

(2018) explained further that this is because it is impossible that the business has an

immediate increase in revenue to expand capital as the factor of production. capital is

financial assets or the financial value as well as the factor of production such as equipment

to produce goods and services (Investopedia, 2018). Hence, additional amount of money

from investment able to raise capital in the company thus improving the productivity of

labor and thus more goods able to produce. When more product is produced, the GDP

increase and the economy grows.

According to Jiang (2013), construction provide a high investment opportunity and

which can be used to cope with macroeconomic problems. Studies done show that the

construction of infrastructure works such as highways and bridge able to attract large

amount of investment from other countries (Durdyev & Ismail, 2012; Dakhil, 2013).

According to Ofori (2000), foreign investment in the project will lead to the increase in

construction in construction demands, creating more work opportunity to the local

companies. It also enables a lot of major infrastructure projects become more feasible with

the involvement of international finance. Nowadays, there is also the implication of Build-

Operate-Transfer (BOT) contracts that enable to private firm to develop infrastructure

8
works such as road (Guo and Yang,2009). The private firm will build the road, charge tolls

to road users for certain period before transferring back to the government. Hence, it

enables to maximize the social welfare and allow acceptable profit to be earn by the private

sector. The private sector may also include other equity investors or public investor to

invest in the project (LEMA, 2000). Thus, the project company will require to pay the

interest rate to the bank. The interest will be considering as the injection to circular flow of

the market economy (Welker, 2011).

However, investment is highly dependent on the business confident, rate of interest,

technology progress and government regulation that able to give to the investors (Pettinger,

2017). Khairani (2011) also mentioned that investors choose to invest in construction

industry because it able to generate good returns for them. Therefore, developing can take

notes on these factors that affect the willingness of the investors to invest in constructions.

9
2.5 Improvement of Transport System
Jiang (2013) referred that construction industry enable the rapid improvement of

the socio-economic environment, urbanization, industrialization and globalization. The

improvement of transportation system may be one of the main factor to the statement above.

This is because the construction of infrastructure work such as roads, highway, railways,

ports, tunnels and airport will able to improve the transport system in the country which

result in developing and improving of the standard of the community (Khan & Liew &

Ghazali, 2014). Li & Liu & Peng (2018) also stated that infrastructure works especially

road infrastructure give direct impact to the community because it provided accessibility

to the public. Hence, it able to generate production of employment, human capital and

services sectors to the resource market, thus increasing the economic productivity. With

construction of new highway, Baum-Snow (2007) also believed that it will able to decrease

the central urban population and promote suburbanization. The connectivity provided by

the construction of transportation system between separated areas will be the main factor

for the suburban expansion and economic growth in suburban areas. According to Hilling

(1996), this also is the main purpose that the developing countries is looking for to develop

the country, “urbanization, industrialization and globalization”.

Besides, Li, Liu, Peng (2018) found out in their study that road accessibility also

promotes market openness. This means that the construction of road network provides

more access to the suburban and urban markets and promote agricultural and industrial

activities. Hence, more private enterprises are willing to establish their own business and

thus improve the economic growth for the country. Other than that, they also highlighted

in their research that transport system often changes goods production and movement,

10
causing restructuring in less developed area. Hence, higher volume of freight able to

transport, stimulating economic prosperity. Ministry of Transport of New Zealand (2014)

also believe that the Total Factor Productivity(TFP) of the country will improved with the

presence of investment and productivity growth.

Ministry of Transport of New Zealand (2014) highlighted that the improvement of

transport system also enables the cost of long-distance trades to be reduced so that the

market can be more integrated and united. It may lead to important economic effects

especially in the existence of imperfect competition in transport-using sectors. However,

transport and the economy can be said to be dependent between each other. The change in

transport might stimulate or weaken the economic activities, the level of economic

activities might as will affect the demand for transport.

11
2.6 Tourism
The product of construction industry also often leads to the growth of travel and

tourism industry in a country. With the growth of tourism, it will often lead to the

development of the economy to a country (Bunghez, 2016). Bunghez (2016) further

explained that tourism will allow expenditure from the tourists, both domestic and foreign

tourist. Then, the expenditure will go either directly under food industry, housing industry

or transportation and even go into the state budget in the form of fees and taxes. Hence, it

can be concluded that tourism able to lead to the development of the economy of a country.

However, how the construction industry can be related to the stipulation on tourism

industry?

The answer will be inter-related with the product that able to be provided by the

construction industry. The construction of megamall, large-scale shopping centers and

other commercial centers able to attract internationals and locals to visit and spend their

money. Hence, it will directly stimulate the growth of GDP in a country. “Pavilion

Shopping Center” and “Mid-valley Megamall” in Malaysia, “Reforma 222” in Mexico and

“SM City North EDSA” in Philippine are some of the example of shopping malls that able

to attract huge amount to citizen and foreigner to visit. When there is a potential in the

tourisms industry in the country, the demands for construction of hotels, restaurants, stores

and transportation will also increase (Bunghez, 2016), thus improving the construction

industry at the same time.

12
 Other than shopping malls, the construction industry often produce tourist

landmarks that motivate the growth of tourism industry in a country. According to Scerri

& Edwards & Foldey (2016), the landmarks able to attract tourism is due to the value of

architecture that able to be captured in the building itself. Iconic architecture enables the

people to remember the identification of a place or a city and thus generate economic

impact. For instance, theSundaily (2015) reported that KLCC in Malaysia able to

contribute an economic impact of RM 6.1 billion since the year 2005 to 2015.

Besides construction of new building or infrastructure works, the construction

industry also includes refurbishment and maintenance of old or historical building.

According to Ismagilova, Safiullin and Gafurov (2015), historical heritage act as a factor

in tourism development. It able to revive the local cultural values and traditions. Through

this opportunity, business such as food and beverages also enable the locals to generate

income. Example of historical buildings includes “Melaka” from Malaysia which can be

seen from Figure 3, “Arcos da Lapa” from Brazil as shown as figure 4. However, historical

and cultural tourism consists of the issue of preservation. This is also the reason why

construction industry play an important roles in the preservation of these traditional and

historical buildings.

13
 Figure 3- Melaka

(Sri Pengkalan Binaan Sdn. Bhd, 2017)

Figure 4-Arcos da Lapa, Rio de Janeiro

(Hinson, 2016)

14
3.0 Conclusion and Recommendation

In short, construction industry play an important role in the developing countries in terms

of economy. The pros that provided by the construction industry includes the increasing of work

opportunity, the enhancement of the socio-economic of the community, growth of GDP,

investment opportunity and the increment of tourism. This is mainly because the construction

sector has diverse relationship between different sectors of economy including manufacturing,

tourism and more. It can also be concluded that construction industry able to achieve the goals of

developing country and will able to continue to lead the developing country to become the status

of developed countries.

During the same time, construction industry should not only focus on development but also

start to implement the concept of sustainable development. Sustainable development was defined

by the Brundtland Commission as “the development that meets the needs of the present without

compromising the ability of future generation to meets their own need” (Cerin 2006). It elaborated

the idea of protecting resources for the future generation so that it able to achieve long-term

stability of the environment and economy (Emas, 2015). Healthy environment like clean air and

water are resources that irreplaceable. Hence, the development today shall not diminish the

developmental and the environmental requirements for the present and future generation

(McKeown,2002).

15
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