The role of the construction industry in economic development: The case of Nepal

The basic premise of this study is that the construction industry can play an important role in the development process in three ways: (1) by building physical facilities required for developing social overhead capital and for satisfying basic human needs because of its forward linkages to sectors such as transportation, agriculture and housing; (2) by promoting an entire industrial sector because of its backward linkages to a large number of industries in the extractive, manufacturing and service sectors; and (3) by providing an important and convenient point of entry for human resources development because of its cultural, social and economic accessibility. However, a construction industry that accomplishes these goals does not emerge merely by expenditures on construction activity. Both growth- and employment-oriented strategies of development assign critical but restrictive roles to construction activity. In growth strategies, the secondary goal of developing human resources tends to be sacrificed for the primary goal of constructing physical facilities as rapidly as feasible. On the other hand, employment strategies tend to sacrifice physical facilities construction for the secondary goal of human resources development. A comprehensive strategy for developing a construction industry is required that permits trade-offs to be made when necessary between the two sets of goals. A model is suggested for such a comprehensive strategy. It states that the achievement of the goals of construction activity are accomplished through alternative modes of conducting the activity, which can be expressed in summary form in various indices which are sensitive to the implementation characteristics of the projects. The project characteristics provide discretion for policy variables to influence the index values through the modes by which construction activities are conducted. The values of these indices, in turn, determine the degree of accomplishment of the three secondary development goals: the generation of additional employment opportunities; the promotion of a construction materials industry; and the development of domestic construction firms. This model has been empirically tested by using multiple regression techniques. For this purpose, primary data were gathered from fourteen construction projects carried out in Nepal in the mid 1970's. A detailed set of estimates are then made from these data and those estimates are used to compute the indices. The regression models indicate the following relationships: (1) Projects financed by multilateral sources, located in easy terrain, and of large scale, are likely to use capital intensive construction methods, while those funded by domestic sources, located in difficult terrain, and of small scale, tend to use labor intensive ones. (2) Projects financed by multilateral sources and of large scale are likely to use a higher proportion of foreign materials, while those funded by domestic sources and of small scale tend to use a higher proportion of domestic materials. (3) Projects financed by multilateral sources and of large scale are likely to use a higher proportion of foreign management input, while those funded by domestic sources and of small scale tend to use a higher proportion of domestic management input. It is demonstrated that a comprehensive strategy can be evolved that permits the manipulation of policy variables to achieve the various goals of construction activity in the manner that appears most appropriate to the situation.