Economic development and construction productivity in Malaysia

The productivity of the construction industry has a significant effect on national economic growth. Gains from higher construction productivity flow through the economy, as all industries rely on construction to some extent as part of their business investment. Contractions and expansions of economic activity are common phenomena in an economy. Three construction cycles occurred between the years 1970 and 2011 in Malaysia. The relationships between construction productivity and economic development are examined by the partial correlation method to establish the underlying factors driving the change in construction productivity. Construction productivity is statistically significantly correlated with gross domestic product (GDP) per capita in a positive direction for the 1985–98 and 1998–2009 cycles, but not the 1970–85 cycle. Fluctuations in construction activities and the influx of foreign workers underlie the changes of construction productivity in the 1985–98 cycle. There was less fluctuation in construction activities in the 1998–2009 cycle, with changes being mainly due to the fiscal stimulation policies of the government in attempting to stabilize the economy. The intensive construction of mega-projects resulted in resource constraints and cost pressures during the 1980s and 1990s. A better management of the ‘boom-bust’ nature of the construction business cycle is required to maintain the capability and capacity of the industry.