Interaction among construction investment, other investment and GDP in China

With Granger causality method, this paper examines the causal dynamics among three economic fundamentals: construction investment, other investment and the gross domestic product (GDP). Short-run and long-run interactive effects among these three time series are analyzed from 1981 to 2001. The empirical results show that construction investment has a stronger short-run effect on economic growth than other investment, and economic growth has a long-term effect on both construction and other investments. These findings indicate that construction investment is an important factor influencing short-term economic growth fluctuations, with its growth stimulating economic growth and its slumps leading to downside fluctuations. At the same time, investment growth cannot be sustained without the support of the national economy. These empirical results have important implications for economic policy makers in China.