Productivity Growth in Construction Value Chains

The construction industry has suffered from low productivity growth in recent decades. Motivated by the economic importance of the industry, we revisit the construction productivity puzzle by analyzing the construction value chains of 12 European countries using data from the World Input–Output, the EU KLEMS databases and complementary datasets. We decompose construction-related value added and productivity contributions to both the construction industry and the rest of the value chain and show that the traditional focus on the construction industry is adversely restrictive for understanding productivity growth in construction activities. There is a substantial contribution of construction-related value added generated in other industries, and the productivity growth in the value chains has, for the most part, been seen outside the construction industry. Furthermore, we show that there is a strong, long-term relationship between construction-related patents and the improvement of total factor productivity in the value chains, but the chains typically do suffer from low efficiency in the use of information technology.