Economics at your fingertips  

Exploring the productivity and value added in construction sector value chain: the case of Estonia

Kaia Kask

ERES from European Real Estate Society (ERES)

Abstract: The paper aims to explore the productivity and value added in Estonian construction sector, by implementing value chain analysis, based on the real estate asset life-cycle concept. The present study tackles the added value-based labor productivity as the proxy to total productivity, where the sum of labor costs, depreciation and net income is divided with the number of workers in the relevant sub-sector. In its narrow definition, the construction sector alone forms by average ca 5% of GDP and in its broad definition, i.e., construction sector along the whole value chain together with real estate sector, form by average ca 10% of the GDP, employing also by average ca 10% of workforce in each country. As the construction sector along its value chain affects both directly and indirectly many other sub-sectors in the economy, the total impact of the construction sector value chain to the overall economy is estimated to be approximately 45% of the GDP. However, despite of the high importance of the construction sector, its contribution to the overall economy in terms of productivity and value added is rather scarce, remaining unchanged during the last decades and lagging many times behind from manufacturing and also agriculture. Many scholars have referred to the lack of innovation as one of the main reasons for low productivity growth in construction sector compared to the other fields. By exploring the productivity and value added issues within the Estonian construction sector value chain, then the results of the empirical analysis revealed that along the real estate asset´s life-cycle based U-curve, the most value adding activities are real estate development on the left side of the U-curve (closer to the producer) and real estate services in the right side of the U-curve (closer to the customer) and the least value adding activity was the construction activity of buildings (production), according to its narrow definition. In general, the level of productivity in construction of buildings is approximately 2.5 times less than for the real estate development and services. In order to increase the productivity of the construction sector along its value chain, Estonian government has set a strategic goal to fully digitize real estate and construction sector by implementing systematically a vision of e-construction. E-construction system will be connected with the X-Road ecosystem of e-Estonia, which links up various public and private sector e-service information systems (i.e., e-identity, e-Land Register, e-Justice, e-Tax, e-Business Register, e-Banking, e-Health Records, e-governance, etc.) to function in a full harmony. In addition, the Estonian government aims also to develop on a long-run strategic plan of counter-cyclical public investment for construction sector. The current study revealed also that in order to achieve the average level of labor productivity in EU 28 construction sector by year 2030, it requires for Estonian construction sector at least 7% growth in labor productivity per each year, which may be regarded as an achievable task due to the strategic plans of Estonian government. However, it also requires a sharp implementation of innovative technology (Technology 5.0) with disruptive change in private real estate and construction sector business models.

Keywords: construction sector; Estonia; Productivity; value added; value chain analysis (search for similar items in EconPapers)
JEL-codes: R3 (search for similar items in EconPapers)
Date: 2019-01-01
New Economics Papers: this item is included in nep-cis
References: Add references at CitEc

Downloads: (external link) (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this paper

More papers in ERES from European Real Estate Society (ERES) Contact information at EDIRC.
Bibliographic data for series maintained by Architexturez Imprints ().

Page updated 2024-06-16
Handle: RePEc:arz:wpaper:eres2019_271