Quantifying the linkages and leakages of construction activities in an open economy using multiregional input-output analysis

Abstract

This study proposes an analytical framework to evaluate the economic influence and leakage of the construction sector in a small and open economy, using Hong Kong as a case study. Input-output analysis (IOA) is used to capture the domestic intersectoral linkages, and multiregional IOA is used to measure the leakages resulting from international trade. In the absence of Hong Kong official input-output tables (IOTs), five IOTs during 1995-2013 and three multiregional IOTs from 2004, 2007, and 2011 are compiled using the Global Trade Analysis Project (GTAP) database in conjunction with official statistics. Comparisons with other economies are included to disclose the relative economic influences of Hong Kong's construction sector. The results reveal the declining economic importance of Hong Kong's construction sector in stimulating economic growth, along with increased leakage to the manufacturing sectors abroad. The domestic backward linkage dropped from 1.74 in 1995 to 1.55 in 2013 per unit of final demand. In 2011, 40.55% of the economic contribution leaked out through international trade. The outcomes provide a rational basis with which to inform the decision making of the Hong Kong government in infrastructure planning, resource utilization, and benefit optimization. An import substitution policy is recommended to ease foreign dependence through local production of construction products.