IMPACT OF MACROECONOMIC FACTORS ON KEY CONSTRUCTION MATERIAL PRICES & CONSTRUCTION INDUSTRY OF PAKISTAN

Abstract

Cost overruns in the construction industry remain a persistent issue despite numerous technological advancements. Inflation may play huge role in the fluctuating prices of construction materials throughout the project lifecycle. However, influence of inflation on construction material price is still understudied. Therefore, it is critical to examine the impact of macroeconomic factors (inflation) on construction material prices. Through a comprehensive literature review, inflation rate and exchange rate are found to be the most significant macroeconomic factors affecting the construction industry. Utilizing causal theory framework, the study aims to establish causal relationships between variables. Data acquisition is carried out through various verified online portals, websites and governmental bodies. Series of statistical analysis, including spearman correlation and regression analysis are used to determine and evaluate the relationship between the variables. The results of Spearman Test indicate strong positive correlation between inflation rate and construction material prices. A similar trend is observed for currency exchange rate. The results of Linear Regression Analysis validate these findings, establishing a robust linear positive relationship between independent and dependent variables and hence the null hypothesis is accepted. Based upon the findings, the study recommends adoption of stronger monetary policy coupled with exchange rate stabilization regime and a key focus on local production of building materials at national scale. At project’s level, the existing bill of quantities shall be revised and the new construction contracts shall be based upon economic price adjustment policy. This study acts as a benchmark and will help the relevant stakeholders in better understanding the magnitude x of macroeconomic factors, carry out risk mitigation and take the required decisive steps to better navigate through the current adverse macroeconomic conditions.