Causal relationship between construction activities, employment and GDP: The case of Hong Kong

• This paper examines sub-sectors of the construction industry in Hong Kong, as well as variances across different periods.
• Bi-directional causality links between the growth of GDP and that of construction activities are found.
• Employment that is generated by construction investment can be a mediating factor of GDP growth.
• Different causal relationships exist between various sub-sectors of the construction industry and GDP in different periods.
• Bon's inverted U-shaped relationship is supported to a certain extent.

The causal relationship between construction activities and economic development has been extensively studied worldwide. However, the results of these studies are generally inconclusive. Thus, sub-sectors of the construction industry and variances across different periods require further examination. Accordingly, this study aims to fill the knowledge gap. In the case of Hong Kong and with a longer time series, bi-directional causality links between gross domestic product (GDP) and construction activities are found. The correlations of employment with GDP and construction also suggest that employment can be a medium or a mediating or intervening factor of GDP growth. Different causal relationships are observed between the various sub-sectors of the construction industry and GDP in different periods. Bon's inverted U-shaped relationship between the contribution of construction activities to GDP and economic development is supported by our case analysis of Hong Kong. With a long timeframe, our study draws statistically significant conclusions on the contribution of construction activities to the economy. The results of this study may inform the formulation of long-term public policies for sustainable industrial development.