Improving inter-spatial comparison of construction costs

Purpose – The purpose of this paper is to compare construction costs between nations, which is an important part of international economic statistics. Methods employed for these comparisons to date have yielded questionable results. The paper presents a summary of the problem and the results of proof-of-concept testing for a new method. Design/methodology/approach – Prices were estimated for a simple basket of two construction components using cost-estimating guides for several nations. Both developed and developing nations were included. The prices were obtained for the components installed in the field, including labor, equipment, and materials. Purchasing power parities (PPPs) were calculated from the baskets. Findings – The results indicate that the basket of construction components approach provides construction sector results much more in keeping with the overall consumption PPPs for the countries tested. This result suggests that the values obtained from this method provide a reasonable measure of construction price differentials. The method also requires substantially fewer resources than previous project-based approaches. Originality/value – Because the construction sector represents a significant fraction of global economic activity, it is important to incorporate this sector into the overall process accurately. The construction sector is difficult to compare, but ironically is often a large share of economic activity in developing countries, where comparison is most important. This paper presents a potential solution to a vexing problem in construction econometrics.