Productivity determinants in the construction sector in emerging country: New evidence from Ecuadorian firms

• Published date: 01 November 2021
• Author: Segundo Camino‐Mogro,Natalia Bermudez‐Barrezueta
• Date: 01 November 2021
• DOI: http://doi.org/10.1111/rode.12771

Rev Dev Econ. 2021;25:2391–2413. wileyonlinelibrary.com/journal/rode

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2391

© 2021 John Wiley & Sons Ltd

Received: 31 January 2019

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Revised: 10 February 2021

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Accepted: 19 February 2021

DOI: 10.1111/rode.12771

REGULAR ARTICLE

Productivity determinants in the construction

sector in emerging country: New evidence from

Ecuadorian firms

SegundoCamino- Mogro1,2,3

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NataliaBermudez- Barrezueta3,4

1Economic Analysis Department,

Universidad Complutense de Madrid,

Madrid, Spain

2ESAI Business School - Universidad

Espíritu Santo, Escuela de negocios,

Samborondon, Ecuador

3Superintendencia de Compañías,

Valores y Seguros, Dirección Nacional

de Investigación y Estudios, Guayaquil,

Ecuador

4KU Leuven, School of Economics,

Leuven, Belguim

Correspondence

Segundo Camino- Mogro, Superintendencia

de Compañías, Valores y Seguros, Av. 9 de

Octubre y Pichincha, Guayaquil, 090503,

Ecuador.

Email: scaminom@supercias.gob.ec

Funding information

Ministerio de Economía y Competitividad,

Grant/Award Number: ECO2017- 82445- R

Abstract

The construction sector is one of the most important sectors for

economic development due, among other reasons, to the pro-

ductive chains that it generates. This paper presents an analysis

of the determinants of the total factor productivity (TFP) in the

Ecuadorian construction sector during the period 2007– 2018.

In the first stage, we estimate a production function using the

Wooldridge (Economics Letters, 2009, 104, 112– 114) estima-

tor to correct the simultaneous determination of inputs and firm

unobserved productivity. In the second stage, we analyze the

main determinants of TFP. These determinants are classified

into four groups: internal, international trade, financial con-

straints, and external characteristics. Our results suggest that

firm age is positively related with TFP but negatively related

with TFP growth. Similarly, the fact of being a family firm

is negatively related with TFP, but size is positively related

with TFP and its growth across the construction subsectors.

In addition, we find that access to debt and credit is positively

related with productivity, but less- competitive environment is

negatively related with productivity. Finally, our results sug-

gest that TFP and its growth are pro- cyclical with respect to the

gross domestic product. Our results have several managerial

implications that are discussed in this article.

KEYWORDS

construction, production, total factor productivity

JEL CLASSIFICATION

D24; L74; L78; L50

2392

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CAMINO- MOGRO ANd BERMUdEZ- BARREZUETA

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INTRODUCTION

The relationships between the construction sector and economic growth are a topic that has been

widely addressed by academia. Many authors have found positive (but sometimes marginal) associ-

ations between the construction industry development and country- level growth in developing econ-

omies (Anaman & Osei- Amponsah,2007; Chan,2002). The construction sector has been found to

have a multiplier effect through the backward and forward relationships with other economics sectors

(Park,1989). This multiplier effect is also supported by the Keynesian tradition in which investment

is an important pillar for sustaining demand (Wigren & Wilhelmsson,2007).

Moreover, the dynamism of this sector is tightly bound to the business cycle of a country. Some

empirical studies have found a positive correlation between changes in the role that the construction

sector plays in a country and changes on its business cycle (Ruddock & Lopes,2006; Tan,2002). For

instance, when a country is in its initial stages of economic development, the construction sector dis-

plays larger growth rates than other sectors. Nevertheless, as the country approaches its desired level

of development, the growth of the construction industry, as well as the cycle of the gross domestic

product (GDP), slows down. This relation between the business cycle and the growth of the construc-

tion sector takes the form of an inverted U (Bon,1992; Sousa- Cruz etal.,2018).

Even though construction industry productivity levels can provide information on the sector de-

velopment, firm- level productivity indicators are needed to understand distributional patterns of pro-

ductivity within the sector. In other words, productivity growth at firm level is an important factor

for determining an increase in productivity at the sectoral level; however, it is not the only one. For

example, even if the firms within the sector do not experience any positive productivity growth, the

sector could display a positive industry productive growth if employees relocate from firms with

lower levels of productivity to firms with productivity levels above the average (Foster etal.,2008;

Syverson,2011).

We focus on seeking the determinants of firm- level productivity in the construction industry in a

developing country setting. Contrary to other studies that have been focusing mainly on internal firm

characteristics (e.g., managerial performance, labor productivity, capital stock management, technol-

ogy, type of ownership),1 our aim is to focus on some business environment characteristics that are

important in determining productivity at firm level.

In Ecuador, the construction sector represented on average 8.9% of the GDP during the period

2007– 2018. This sector is the fourth largest in the economy after the oil, manufacturing, and retail

sectors. However, although this sector experienced positive growth rates during the period 2007–

2014, 2011 being the year with the highest annual growth rate (+17.6%), it also experienced low

and negative growth rates over the past 4years. In 2016, it presented the lowest growth rate with a

decline of 5.8% on the sector growth rate (Banco Central del Ecuador [BCE], 2020). The construction

sector in Ecuador is characterized as being a competitive sector. It also has a large number of firms

with family ownership; approximately 94% are family- owned firms.2 In addition, 5% of the firms in

the construction sector are large enterprises. Moreover, the construction industry has limited access

to credit compared to other developing countries in the region3; approximately only 25% of the firms

hold obligations to a financial institution.

In this sense, our aim in this paper is to provide a twofold contribution. First, unlike most previous

evidence for the construction sector, we compute estimates of the total factor productivity (TFP) at

firm level using semiparametric approaches that have been proven to provide more accurate produc-

tivity estimators given that they cope with simultaneity and endogenity issues (Van Beveren,2012;

Van Biesebroeck,2007), especially when prices of inputs and outputs are available. The majority