An Empirical Analysis of Linkage between the Construction and Manufacturing Sectors of Malaysia (2000-2010)

Construction and manufacturing are the key sectors of
Malaysian economy. These sectors play significant role in socio
economic development of Malaysia, generate substantial
amount of revenue for Malaysian economy and provide
employment opportunities to number of skilled, semi-skilled,
unskilled, educated and uneducated people. Construction and
manufacturing sectors are greatly interlinked with each other
through their backward and forward linkages. The purpose of
this study is to measures the causal relationship and linkage
between construction and manufacturing sectors of Malaysia by
using sophisticated econometric approach. Granger causality
test and the vector auto regression (VAR) technique is used to
determine the causal relationship between the two sectors and
measure the effect of changes in output of one sector on the
output of other sector. The results of the study show that there
is strong correlation and bidirectional causal relationship exists
between the construction and manufacturing sector of Malaysia
during the study period 2000-2010. The construction sector
takes approximately 21 months to respond the impact of shocks
coming from manufacturing sector while the manufacturing
sector responding time is 15 months