SPILLOVERS OF CONSTRUCTION BOOM TO MACROECONOMY IN A SMALL-OPEN DEVELOPING ECONOMY: THE CASE OF ARMENIA

Abstract

In this article, the authors attempt to assess the spillover effects of the construction sector on the domestic economy of Armenia, for which purpose the economic and construction sector trends, cycles, and their interrelations were studied. The authors also collect and analyze data on the construction materials market – including production and imports. The analysis reveals that the general trends within the construction sector tend to be disconnected from broader economic trends and developments in the financial sector. The lack of correlation between the construction sector and the manufacturing industry suggests that developments in the construction sector do not exert a sufficient impact on the economy, as imports are the first variable to respond to the construction boom. On the other hand, the growth of the construction sector is consistently accompanied by an appreciation of the exchange rate, both in terms of general trends and during specific periods. This appreciation may reduce the competitiveness of the export sector.

Keywords

• cost markup
• econometric analysis
• exchange rate
• inflation
• construction
• building