Term Paper on "Economics in Construction Industry"

Term Paper 6 pages (1716 words) Sources: 7 Style: Harvard

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Economics in Construction Industry

Data is very critical in a construction environment, and availability of appropriate statistical data assists policy makers in implementing an effective housing planning and formulates appropriate construction policy for the country. Despite the importance of data for the formulation of construction policy, it is still challenging to source for the appropriate statistical data that could be employed for the formulation of construction policy in many European countries such as France. Unless, there is a way to source for the statistical data, measuring the construction activity in France may be challenging. Typically, there is a need to know the quality output, location activity, and number of skilled and unskilled employees in the construction workforce. It is when the data relating to the construction activity are identified; the social problems such as homelessness, health, and safety, migration, training and other issues can be addressed in France. To address the challenges relating to data source, the study considers a benchmark model based on the UK construction industry. The model is used to set up a database of construction data for France based on the UK construction benchmark. (Department Business Innovative & Skills, 2011). The UK version of Standard Industrial Classification 2007 (SIC) system is in consistence with International Standard Industrial Classification (ISIC) system that could be employed for global comparison.

The objective of this exercise is to set up a database of construction data for France based on the UK construction data. The paper models the UK economic data to set up the database for the France constructi

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on data.

Modeling of the UK Construction Data

To set up a database of construction data for France, the study uses Gross Fixed Capital Formation (GFCF) that is assessed from the UK National Accounts. From the data taken from the UK Construction Statistics Annual (CSA), it is possible to establish the breakdown of construction activity of France since the UK national construction activity could be applied to the construction activity of other countries. (Research and Market 2010, Leading Edge (2011).

To set up the database for construction data of France, the data are taken from the UK National Accounts from the Office for Statistics (2011). The Table 1 provides the UK output, Gross Value Added, and Compensation by employee in the UK construction industry. The Table 2 also provides the UK Gross Capital Formation for the whole Economy. Based on the data in the Table 1, it is revealed that there is increase in the UK construction total output from 2002 to 2007. However, between 2007 and 2009 there was a decline in the construction performances. From the table 2, the gross capital formation for the UK economy also showed high performances between 2002 and 2007, however, there was a decline in the performances of the gross capital formation starting 2007 to 2009 with little improvement 2010.

Table 1: UK Output and Capital Formation in Construction Industry (£Millions)

2002

2003

2004

2005

2006

2007

2008

2009

2010

Gross Capital Formation

4 241

Total Output (At Basic Prices)

158,003

170,760

185,724

198,346

212,725

237,036

230,998

209,619

Gross Value Added (At Basic Price by Index )

93.2

97.6

86.5

93.6

Gross value added (At Current basic prices)

66 938

72 619

79 311

82 634

88 287

96 897

97 873

87 373

Compensation by Employee

35 368

37 058

38 910

41 284

44 816

48 071

50 295

47 246

Gross value added by Indices (Education )

98.8

99.5

99.9

Gross value added by Indices (Gas )

95.9

97.7

99.2

98.9

98.7

99.5

95.2

98.6

Source: Office for Statistics (2011).

Table 2: UK Gross Capital Formation for the whole Economy (£ Millions)

2002

2003

2004

2005

2006

2007

2008

2009

2010

New dwellings, excluding land

47 526

49 782

54 746

58 044

59 068

61 630

55 449

44 119

44 450

Other buildings and structures

48503

53167

54188

61158

63979

72388

79433

76045

73818

Transport Equipment

18 548

16 762

14 332

14 009

14 909

14 533

13 721

11 147

14 831

Other machinery, cultivated asset and equipment

49 625

49 150

50 969

48 563

53 717

60 418

59 390

53 488

54 851

Total

Intangible fixed assets

15 032

15 988

16 083

16 388

16 531

16 923

17 417

16 502

16 593

Costs associated with transfer (of ownership of non-produced assets).

22 625

19 587

26 875

25 305

27 141

27 386

15 954

7 750

9 944

Total gross fixed capital formation

Source: Office for Statistics (2011).

Based on the UK data of the construction output and gross capital formation, the study uses the data to set up the database of construction categories for France.

Setting up a Database for France Construction Data

The study set up a database for the France construction categories based on the UK benchmark. Moreover, the study assesses data from the United Nations database to set up the database for France, and the 10-year data are used to set up the database for construction categories for France. Based on the data on the construction categories in Table 3, there is a general increase construction output in France from 2001 to 2008. For example, the Gross Capital Formation for construction activities for France based on the UN data reveals that France recorded $393.1 billion in 2001 and the Gross Capital Formation increased to $473.6 billion in 2008. However, the GCFC declined to $405.3 billion in 2009 with a slight improvement in 2010. Similar results are revealed in France database set up from the UK benchmark. The data in the Table 4 are set up for French construction activities based on the UK benchmark. Similarly, the construction output increased from 2001 to 2008 and there was a decrease in construction output between 2008 and 2009. For example, the GCFC for France was $383.6 billion in 2001, and the GCFC increased to $459.2 billion in 2008. However, from 2008 and 2010, the France GCFC declined from $459.2 billion to $412.6 billion.

Table 3: UN Database for France Gross Fixed Capital Formation ($ Billion)

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Gross Capital Formation

Gross Fixed Capital Formation

Construction

Fig 1: UN Gross Fixed Capital Formation for France ($ Billion).

Table 4: GCFC for France Based on the UK Benchmark

Year

GFCF

construction Gross Capital Formation ( 51.7% of GFCF

Construction Output ( Construction x GCF100/62.2)

Estimate Total Repair & Maintenance for Public and Private Sector

Fig 2: GFCF for France based on the UK Benchmark

Based on the chart in Fig 1 and the chart in Fig 2, it is revealed that there are similarities in the two charts meaning that there is no difference between the French data modeled from the UK benchmark and French data retrieved from the UN database. Both set of data reveal that the output of the construction activities increases from 2001 to 2008. Both set of data also shows that there are decline in the construction activities between 2008 and 2010 as being revealed in the fig 1 and the fig 2. There are several factors leading to the decline in the construction activities between 2008 and 2010. First, the economic downturn that affects many countries in Europe and many advanced countries also affect construction sector in France. Additionally, the present economic crisis triggered by the subprime lending makes many banks in France to restrict bank loans for mortgage activities, and overall effect is the reduction of the construction output in France. With economic crisis, several construction companies reduced their temporary staff by -19%, and the economic crisis makes France to record -2.5% in GDP in 2009. However, the country recovered with 1.5% growth in GDP in 2010. Owing to the poor economic performances between 2009 and 2010, the French construction sector deteriorated from 4.7% in 2009 to 4.5% in 2010, and the real growth of construction sector declined from 8.2% in 2007 to 0.9% in 2010 with little improvement in the real growth rate in 2011 and 2012. Despite the global economic crisis, the construction sector maintains 6.4% increase in the GDP between 2010 and 2011.

Report provided by Kelly and Herring (2012) also reveals that there is an increase in the growth rate in the construction activities in France before 2007. The data provided by Kelly et al. (2012) indicates that there is a decline in the growth rate in the construction sector starting from 2007. In 2007, the growth rate in construction industry in France was 8.2%, however, the growth rate declined to 0.9% in 2010. (The growth rate in France construction activities is revealed in Table 5 and Fig 3). Typically, the data provided by Kelly et al. (2012) is similar to the data provided by the United Nation and model data formed from the UK benchmark.

Table 5: France Construction Sector Metrics

2007

2008

2009

2010

2011

2012

Construction Industry Value (£Billion)

Construction Industry Real Growth (%)

8.2%

6.1%

3.2%

0.9%

2.0%

2.4%

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Quoted Instructions for "Economics in Construction Industry" Assignment:

“

Modelling and understanding construction data in different countries;

The purpose of this exercise is to set up a database of construction data of France based on the construction data in the UK. This is a form of modelling economic data on the construction industry, when actual data is not readily available or when there is a need to aggregate or compare one or more countries.

The coursework is in 2 parts. The first part of the exercise is to model the data. The second part of the exercise is to an***** the data and assess it critically.

Part 1 of the coursework is attached in with the documents, you will need to do some more research in addition to the attached.

To complete the first part of the exercise, the first stage of modelling the data is to find UK construction data from Construction Statistics Annual. The second stage is to find the construction element of gross fixed capital formation, which can be found in the National Income Accounts. The third stage is to find data for France. You may access actual national construction data and compare it to the modelled data of this exercise.

The result will be a number of tables in Excel giving construction output data of the building industry.

In the second part of the exercise, the data produced in the first part will be an*****d over a 10 years and it will be possible to assess the size and growth rate of construction industry output for France. You will be expected to relate the construction data you modelled to the national economy of the country and to other sources of information, such as population statistics, national income levels, economic growth, stages in economic development and other aspects you find of interest and relevance. Aspects of economic theory such as construction markets, inflation, employment, productivity and contribution to national income should also be considered.

Other areas that might be of interest include industrial relations, procurement arrangements, training, the construction market mechanism, fragmentation of the process, land markets, construction finance, specialist contractors, tendering, supply chains, waste, pollution, competition and quality of output. There are many other areas of study that you may find of interest and importance. However, it is important to focus two or three aspects only in the discussion part, although a number of variables might be included in a regression model if so desired. In other words, there may be many causes but only discuss one or two of them in detail.

The *****purpose***** of the report is to advise either government or a major company on opportunities, strengths or weaknesses in the construction market of France. Reasons need to be given in terms of economic theory and marks will be awarded for attempts to explain relevant aspects of that economic theory. The academic aim of this coursework is to understand the causes of the trends found in France and show an ability to explain the implications of the data found.

From your reading around the subject, starting with the books suggested in the sources of information above, apply the theoretical approach used to study the economics of the construction industry to an***** the construction industry of France. The essay in part 2 of the coursework must include industry data and analysis. Graphs and tables must be shown as part of the text and must be referred to and explained. They must not be inserted at the end or as appendices. There must be a quantitative element in your essay. This will provide evidence to support the argument that your selected topic is related to construction activity in some way. You may include tables, graphs and statistical an*****s. The essay must deal with an economic aspect of construction and therefore it needs to refer to a least one economic theory applied to the construction industry.

You will need to refer to official published data, refereed journals and books. Websites can be used stating date when accessed but websites should not dominate the references, even where the data or reference has been found on the internet. Use Library Search to locate papers of relevance.

The length of the coursework (excluding appendices) should be about 2,000 words as the coursework is expected to include data analysis, graphs and an appendix explaining the method used to an***** the data. *****

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