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Synchronicity of global construction cost indexes

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DOI: 10.1108/ECAM-02-2018-0045

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 Engineering, Construction and Architectural Management
Synchronicity of global construction cost indexes
Ruixi Zhang, Jinding Xing, Kunhui Ye, Weisheng Lu, Yongwei Shan,
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Synchronicity
Synchronicity of global of global CCIs
construction cost indexes
Ruixi Zhang
Research Center for Construction Economics and Management,
Chongqing University, Chongqing, China
Jinding Xing Received 10 February 2018
School of Construction Management and Real Estate, Revised 4 July 2018
Accepted 20 August 2018
Faculty of Built Environment, Chongqing University, Chongqing, China
Kunhui Ye
School of Construction Management and Real Estate,
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Faculty of Built Environment, Chongqing University, Chongqing, China and

Department of Building and Real Estate, Hong Kong Polytechnic University,
Kowloon, Hong Kong
Weisheng Lu
Department of Real Estate and Construction, University of Hong Kong,
Pokfulam, Hong Kong, and
Yongwei Shan
School of Civil and Environmental Engineering, Oklahoma State University,
Stillwater, Oklahoma, USA

Abstract
Purpose – The purpose of this paper is to examine the features and tendency of cost indices in the global
construction setting.
Design/methodology/approach – Data from 22 countries/regions are collected and analyzed using
maximum variance formulation and Kendall rank correlation coefficient.
Findings – It is found that global construction cost indexes (CCIs) have commonly maintained a steady
increase for decades, and the CCIs synchronize with each other. Overall synchronicity and synchronicity of
different countries pairs have increased with time significantly.
Research limitations/implications – The major limitation, however, is the availability of data: only
22 regions/countries are examined, the distribution of these regions/countries is imbalanced between different
continents and various indices are adopted around the world, of which statistical methods are not same.
Practical implications – The implication is that a better perception of CCIs enables contractors to have a
robust estimation for bidding prices and to improve the efficiency of construction projects management.
The research findings also provide a useful reference for those countries that have not established
construction cost indices databases to forecast the tendency of domestic construction industries.
Originality/value – This paper contributes to the overall body of knowledge by presenting the co-movement
of global CCIs and measuring the changes of CCI synchronicity with time and in different countries pairs.
Keywords Construction, Estimating, Competitiveness, Vibration, International practice, Bidding,
Construction cost index, Synchronicity
Paper type Research paper

Introduction
International construction is one of the most attractive businesses that contractors expect to
operate in the present era of globalization. According to the Engineering News-Record, the
overseas contract revenue of top 225 international contractors has increased rapidly over
Engineering, Construction and
Architectural Management
The authors are grateful to Chongqing University for financing this research project under the Fundamental © Emerald Publishing Limited
0969-9988
Research Funds for the Central Universities, No. 2018 CDJSK 03 PT 16 and cqu2017hbrc2B10. DOI 10.1108/ECAM-02-2018-0045
 ECAM the years from 2005 to 2016. With the pace of globalization, entering the international
construction market and exploring business overseas have been instrumental for
contractors to achieve business growth (Deng et al., 2014). Therefore, in addition to
multitudinous competitors from developed countries such as the USA, UK, Japan and
European countries, a growing multitude of contractors from developing countries are
involved in the international construction industry (Low and Jiang, 2003).
International construction is characterized with social and political instability, a high
possibility of investment failure and considerable market turbulence (Ye et al., 2009). Cost
overruns, schedule delays and enterprise bankruptcy may appear if contractors fail to manage
international construction business in due ways (Yildiz et al., 2014). Recent studies on many
completed projects have been conducted with a snapshot of this (Mulva and Dai, 2012;
Grau and Back, 2015). For instance, Mulva and Dai (2012) found that nearly 70 percent of 975
projects completed between 1996 and 2011 suffered from cost and schedule deviation (negative
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or positive) in excess of 10 percent; only 5 percent of them actualized authorized cost and
expected completion time with slight deviations. These kinds of unsatisfactory performance
may be attributed to fragile perceptions of construction cost which will further cause the
closing actual cost to surpass the preliminary estimate (Hassim et al., 2018). On the one hand,
there are observations of “the winner’s curse,” which signify that construction cost variability
is an overwhelming risk associated with contractors’ profit and owners’ budget (Ashuri and
Lu, 2010). Hence, contractors have to handle any challenges of construction cost as far as they
could. On the other hand, a vast majority of global construction projects are more complicated
than usual in cost management. As stated by Smith (2016), the need to establish cross-national
regular patterns for construction cost management has been unprecedentedly germane.
In the discipline of construction management and economics, construction cost indices
(CCIs) are examined mainly for the purpose of making short- and long-term forecast of market
trends in an individual country (Grau and Back, 2015; Xu and Moon, 2011; Ashuri and
Lu, 2010). In appraising the paucity of relevant examination in the international setting,
the aim of this study is to examine CCIs with the intention of identifying their common
features on a global scale. The examination favors individuals/entities to realize the nature of
international construction business. In addition, a comprehensive perception of CCIs across
different countries/regions facilitates international construction contractors to manage cost
risks, form solid groundworks for project performance assessment and formulate competition
strategies (Ye et al., 2014). The remainder of this paper is organized with five sections. The
theoretical background of the research is discussed in the second section. The third section
describes the research activities. Results of the data analysis are outlined in the fourth section.
The last one summarizes research findings, implications of the findings and limitations.

Conceptual background
Construction cost indexes
Since their applications in the field of purchasing power measurement, index number
methods have gained much popularity in the discipline of economics (Guerrero-de-Lizardi,
2013). An index number would be derived by calculating a large amount of data for a
defined variable. The derived indices are useful to mirror relative changes in value added by
a variable or a set of related variables (Molugaram and Rao, 2017), and they may vary
in a spatial or temporal dimension with the changes of prices or economic activities
(Langston, 2014; O’Neill, 2015). In the construction context, a cost index (or CCIs) is a
weighted aggregate price index for constant quantities of workforce, materials and
equipment that are necessary for construction activities (Hassanein and Khalil, 2006).
The role of CCIs in domestic construction markets is two-faceted, namely, a baseline for
estimating the amount of construction cost at the project level, and an indicator for general
change of construction cost at the industrial level.
 The applications of CCIs span widely from informing decision making, estimating Synchronicity
construction cost, preparing budgets in earlier stages of construction projects to life-cycle of global CCIs
cost planning, management and control (Xu and Moon, 2011). According to the Department
for Business Innovation and Skills in Britain, users of built facilities rely heavily on cost
indices to operate day-to-day business. Most of them are able to recognize potential major
disruptions to works if alternatives become unsuitable. In reverse, without an accurate
estimation of CCIs, contractors may encounter thorny problems such as schedule delays,
cost overruns and insolvencies especially on those construction projects that have high
variability of construction cost (Ashuri and Lu, 2010). CCIs are thus widely adopted
in the architecture, engineering and construction sector to gauge construction cost trends
(Touran and Lopez, 2006; Xu and Moon, 2011). Furthermore, CCIs can assist contractors to
compare cost or price for a limited quantity of goods or services over a period of time
(Williams, 1994; Trefor, 1994), and behind a set of CCIs may contractors’ general
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competitiveness be judged (Hwang, 2011).

Synchronicity of CCIs
Economic links between cities, states, regions and countries are fueled by globalization as
evidenced by the integration of international production chains (Vitsounis et al., 2014).
Such kinds of economic links are stretching the borders of society, and they have stimulated
widespread concerns over the synchronization of industries. Synchronization, which
basically means “moving at the same rate and exactly together” (House, 1987), refers to the
development patterns of business cycles or the co-movement of growth rates through time.
In the mainstream of economics, researchers claim that the trade fluctuation across borders
as well as the synchronization of business cycles pushes economic entities to grow
simultaneously (Chan and Hameed, 2006). Likewise, synchronicity is the similarity of
movement in these patterns over time (Patrick and Aaron, 2011).
The gaps of CCIs between developed and developing countries can be narrowed for a few
reasons (Ke et al., 2013). First, economic synchronicity is determined in part by the factors of
international trade, capital flows and multinational corporations that prompt different
economic entities to grow in same directions (Patrick and Aaron, 2011). International trade
has been a dominant force that causes construction businesses to develop in similar
manners ( James and Daniel, 2008). Recent years have witnessed that a large number of
construction firms from less-developed countries explore businesses overseas to escape
from strong business competition in their home markets (Li et al., 2013). Second,
synchronicity of CCIs is embodied with the close linkages of construction to other sectors
including finance, technologies, management, materials and labor (Raftery et al., 1998). The
internationalization of construction firms has been further advanced by the accumulation of
enterprise resources and advanced management skills that mirror the progress of
knowledge (Oluwatayo and Amole, 2012). Last but not least, rapid urbanization in
developing countries attracts contractors or consultants of developed countries to flood in
from all over the world, and nowadays international construction firms have more
opportunities than before to impact local construction productivity.

Determinants of CCIs’ synchronicity

CCIs’ synchronicity is arguably subject to the determinants of construction cost as
presented in the literature of construction management and economics. The inherent
relationships between these determinants spell out why the synchronicity of CCIs
might appear in the global construction arena. For simplicity, these determinants
are classified into four levels, namely, national, industrial, business and project
(Nunes et al., 2011).
 ECAM The macroeconomic factors include consumption growth per capita, GDP growth per
capita and stock returns (Rangvid et al., 2016), which impel markets of different countries to
be more connected (Milcheva and Zhu, 2016; Welcome, 2005). Pukthuanthong and Roll
(2009) calculated price indexes and total return indexes in the cohort of 17 larger countries,
and found that international markets had been experiencing increased integration in the
past decade. Therefore, it is reasonable to expect that construction markets on a global scale
might have some tendencies in common.
Some parameters related to construction business have been found useful to address
economic issues. Barber and El-Adaway (2014) revealed that the volume of residential
construction is an indicator of economic growth. Workforce and material resources are
utilized in the construction industry, and the utilization efficiency of these two factors
manifest economic states in which a country may has been (Anaman and Osei‐Amponsah,
2007). This suggests that the employment rate in the construction industry coincides with
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the pace of economic growth (Taylor and Bowen, 1987; Touran and lopez, 2006). In addition,
previous research has shown that both GDP and consumer price index have positive
relationships with CCIs (Shahandashti, 2014), but CCIs correlate to prime loan rate in a
negative way (Ashuri and Shahandashti, 2012). Furthermore, some other factors such as
producer price index, economic conditions and energy price index are often combined to
examine the variation of CCIs over a period of time (Shahandashti, 2014; Ashuri and
Shahandashti, 2012).
At the level of industry, materials price and volatilities of workforce pose CCIs to
fluctuate ( Joukar and Nahmens, 2015; Touran and Lopez, 2006). There is a highly positive
relationship between employment rate and CCI (Shahandashti, 2014). The interaction
between construction demand and supply requires contractors to charge different prices for
construction activities. For instance, the proliferation of housing demands will be followed
with a larger supply of construction services (Williams, 1994), and the resultant changes of
construction costs. As delineated by Skitmore (1987), the relationship between new
construction demand and price level is positive. In this strand, housing demands must be a
determinant of CCIs. Nevertheless, this may not always be the case because housing scale
does not significantly correlate with CCIs (Shane et al., 2009). Whilst the industry capacity
has effects on price movement (Taylor and Bowen, 1987), the level of construction cost is
affected by building approval and fixed capital formation in buildings in the short or long
run ( Joukar and Nahmens, 2015; Ashuri and Shahandashti, 2012).
Other factors related to the project level comprise investment intention, architects’ new
commission, new construction orders and penalties as a result from delays (Renata and
Marek, 2015; Ashuri et al., 2012). In addition, construction costs are determined by
construction works, scope, expected volume of work, progress payment and construction
technologies ( Joukar and Nahmens, 2015; Shane et al., 2009; Touran and Lopez, 2006).

Methodology
Maximum variance formulation (MVF)
Principal component analysis is a statistical tool to project data onto a lower dimensional
linear space, of which the dimensions are called principal components (Volosovych, 2011).
The first principal component approach satisfies the research purpose and matches the
quality of multiple samples in this study. Therefore, it is used to derive a reference curve to
reflect the overall trend of global CCIs. The first principal component can be extracted by
means of MVF as demonstrated widely in the field of signal processing. The principle of
signal processing is that signal has larger variance, while noise has smaller variance.
By locating signals in a two-axis coordinate system, smaller variances on a certain axis are
considered to be caused by noise. This method transforms the observed signals into
principal components, and retains variance in the data set.
 Previous studies have disclosed that MVF is an appropriate method to analyze historic price Synchronicity
data especially on the occasion when a variety of countries, regions and industries are of global CCIs
examined (Pukthuanthong and Roll, 2009). Linear dimensionality reduction by means of MVF
is built on leading eigenvectors of data covariance (Yun et al., 2012). If cost indices of all samples
have high relevance, CCIs for a country/region can be treated as a signal based on the
principle of maximum variance theory. Thus, the reference curve could be extracted
successfully. Considering a data set of observations {ccii}, where i ¼ 1, …, n, and n is the
number of all samples. Assumed {ccii} is a Euclidean vector with dimensionality j ( j ¼ 1, …, k),
CCI for sample i at time j is cciij.
Before detecting the relationships between CCIs, it is very important to conduct
Kaiser–Meyer–Olkin (KMO) test in the study to ensure that the data fit MVF (Bayo and
López-Castellanos, 2016). Setting cost indices per country over the period of time as a
sample, a linear correlation coefficient is derived as follows:
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PP 2
i a j r ij
KMO ¼ P P P P ; (1)
i a j r ij þ
2 2
i a j pij

where rij and pij is Pearson correlation coefficient and partial correlation coefficient of
ccii and ccij, respectively. The value of KMO is between 0 and 1, and according to Kaiser and
Rice (1974), a KMO value of more than 0.9 represents very suitable for analysis, 0.8 means
fit, 0.7 means general, 0.6 means not appropriate and below 0.5 is extremely inappropriate
in general.
Then, in accordance with the first principal component, all data should be projected onto
a one-dimensional space (M ¼ 1) while the variance of the projected data is maximized.
The direction of this space is defined using a j-dimensional vector u, which is a unit vector so
that uTu ¼ 1. Each data point of CCIi is then projected into a scalar value uTCCIi, where
CCIi is defined as follows (Bishop, 2006):

1X k
CCI ij ¼ cciij  cciij : (2)
k j¼1

The variance of the projected data is calculated as follows:

1X n  2
uT CCI ¼ uT Su: (3)
n i¼1

To maximize uTSu, a standard result for a positive semi-definite matrix such as S is that the
product’s maximum possible value is the largest eigenvalue (λ1) of the matrix, which occurs
when u is the corresponding eigenvector. Then, the coefficient of the characteristic equation
of the global CCIs (GCCI) can be given by:
u
GCCI ¼ pffiffiffiffiffi  CCI T ; (4)
l1
 pffiffiffiffiffi
where the sum of elements in vector u= l1 equals 1.

Calculating cross-sectional synchronicity coefficients

The derived reference curve is a baseline for the measurement of synchronicity between
CCIs of samples. Synchronicity is additionally called concordant pairs, which means that
observations (x1, y1), (x2, y2), …, (xn, yn) and (xj−xi)( yj−yi) W0,∀j Wi(i, j ¼ 1, 2, …, n) are
available. Otherwise, the observations are discordant pairs and they cannot be used for
 ECAM synergetic analysis (Puth et al., 2015). Kendall’s τ test is a non-parametric scale of correlation
between two ranked variables (Llukan, 2011). The coefficient τ means the degree
of synchronicity. Assuming that the number of concordant pairs is nc and the number of
unconcordant pairs is nd, the synchronicity coefficient τ can be calculated by using the
following equation:
 
nc nd
t¼ : (5)
nðn1Þ=2
Results of this step fall into the internal (−1, 1). If the derived internal is (0.8, 1.0), the
synchronicity should be very strong. If the interval is (0.6, 0.8), the synchronicity is less
strong. Moderate synchronicity will surface if the interval is (0.4, 0.6). Otherwise, the
synchronicity should be insignificant (Moore, 2010).
In addition, g indicates the deviation of a sample’s CCI curve to the reference curve
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as follows:
qffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi
Pk  2
j¼1 cciij GCCIj
gi ¼ qffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi
Pk ffi : (6)
2
j¼1 GCCI j

The closer the coefficient g to 0 is, the smaller the deviation degree is.

Calculating time series synchronicity coefficients

Since Kendall’s τ test is inapplicable to examining the time series features of synchronicity,
Sirt is adopted to calculate the synchronicity between sample i’s CCI curve and the reference
curve at time t (Kalemli-Ozcan et al., 2013):
   
S irt ¼  lnccii;t lnccii;t4  lnccir;t lnccir;t4 ; (7)

where Sirt is expressed in negative values for the convenience of identifying the curves of
synchronicity directly. The closer the Sirt value to 0, the larger the time series synchronicity,
and the higher the similarity of CCI curves will be. As Kalemli-Ozcan et al. (2013) pointed
out, Sirt is not influenced by the volatility of samples, which allows this study to outline the
co-movement of CCI curves.

Data collection and analysis

The data collected in the study distribute over different continents. In fact, the cross-section
refers to 22 economies, out of which 16 are member states of OECD, a major part of the
global market. The other six are Singapore, Lithuania, Uganda, Mauritius, China Mainland
and Hong Kong which have significant influence on regional level. In summary, the selected
economic entities have extensive representativeness and connection in terms of economic
performance and geographical distribution.
CCIs vary significantly from one country to another with respect to type and frequency
of compilation. Some nations (e.g. Singapore) have no construction cost databases, but they
use construction input/output price indices or tender price indices as an approximation.
Despite minor difference, most of the indices are placed on weighted aggregate of average
price of constant quantities of labor, materials and equipment that are utilized in
construction projects (Shahandashti, 2014; Touran and Lopez, 2006). Consequently, a set of
indicators are determined as shown in Table I.
According to the Eurostat, indicators for both cost and price show very similar
development features in general, and they can be treated as a guideline to reflect the
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Indices Samples Types ( frequency) Explanation Sources

Construction cost Japan Residential The deflator for each component is calculated by the Official Statistics
deflators buildings (monthly/ Laspeyres type formula with the weights based on the ratios of Japan
quarterly/yearly) of materials and labor cost by kind of construction work to
the total cost of construction
Construction cost Denmark; Spain; France; Italy; Lithuania; Residential The construction cost index is to show the development of Eurostat
index Finland; Portugal; German; Austria; The buildings costs incurred by the contractor or producer to carry out the Statistics
Netherlands; Norway; Turkey; UK (quarterly) construction process including labor, materials, plant and
overheads
Construction and China Residential Costs of building materials, labor and machinery are all Shenzhen
installation buildings (monthly) taken into account based on the construction market Construction
engineering cost Engineering Cost
index Network
Construction price Canada Apartment building Changes in contractors’ selling prices of new apartment Statistics Canada
index (quarterly/yearly) building construction and major sub-trade group (structural,
architectural, mechanical and electrical)
Mauritius Residential Prices of a representative selection of basic inputs (labor, Statistics
buildings (monthly/ plant, materials and transport) into the construction work Mauritius
quarterly/yearly)
America Single-family The price index excludes the value of land and other non- United States
houses (monthly) construction costs Census Bureau
Construction Uganda Residential The prices for the whole construction sector covering Uganda Bureau of
sector index buildings material prices, wage rates and equipment hire rates Statistics
(quarterly)
Input to the house Australia Residential houses It includes all inputs, fittings and fixtures which form an Australian
construction (quarterly) integral part of the structures of detached house buildings Bureau of
industry Statistics
Tender price index Singapore Residential The calculation method of the index is the same as that of the Building and
buildings and Royal Institute of Chartered Institute of construction costs. It Construction
commercial office is mainly influenced by production factors such as labor Authority
(quarterly) costs, materials costs, machinery and equipment use fees
Hong Kong Building works Architectural
(quarterly) Services
Department
Note: Due to data availability in China, Installation Engineering Cost Index of Shenzhen city is adopted as an alternative
Synchronicity
of global CCIs

global construction
Table I.
Typical CCIs in the

market
 ECAM changes of cost in construction markets. The main types of CCIs including building cost
index, output price index and tender price index are adopted to present the trends of
construction cost in the international construction industry. For simplicity, these types of
indices mentioned above are called “CCI” in this paper.
Quarterly data from 2006Q1 to 2015Q3 are collected for 20 countries/regions, while data
from China and the USA are monthly and must be transformed into quarterly one for
simplicity of comparison. The countries listed in Table I are included due to data
availability. A few missing data are inputted using linear interpolation. As a result, 22
countries/regions from Europe, Asia, America, Africa and Oceania are gathered.
CCIs of all samples are re-calculated by setting the first quarterly data of reference year
(2006) to be 100 for unification. Seasonal fluctuations are smoothed by following US Census
Bureau X-12-ARIMA procedure (Mink et al., 2015). X-12-ARIMA has been widely used to
seasonally adjust the economic time series, and it provides procedures to examine the
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time series’ trading day effects, holiday effects and some other calendar effects. Further
information about X-12-ARIMA can be find in X-12-ARIMA Reference Manual. The results
are shown in Figure 1.
Figure 1 demonstrates that most of the CCI curves sustain upturn trends of growth, and
their volatility appears to be in a synchronous way. For instance, both Hong Kong and
Turkey had a distinctive growth of CCIs, but the growth was relatively vague in European
countries. Most of the CCI curves were subject to much fluctuation during the period of
2008–2009, and thereafter fell down distinctively by 5–30 percent. Compared to other
entities, Hong Kong and Mauritius had a sharp decrease in CCI curves. These characteristics
are aligned with previous studies, which show that construction markets of different nations
may be fluctuating simultaneously as they have some determinants in common (e.g. global
financial crisis) (Edey, 2009; Ozdemir and Kilic, 2011). KMO test is applied to further reveal
the high linear correlation between 22 samples with a KMO value of 0.881, which suggests
that the correlation is strong and MVF can be used to outline the reference curve.

(a) (b)
240
Construction Cost Index

200 130

120
160

110
120

100
2

3
Q

0Q

7Q

8Q

9Q

Q
07

08

11

13

14

10

12

13

14
1

0
20

20

20

20

20

20

20

20

20

20

20

20

20

Time (quarterly) Time (quarterly)

Overall Partial
USA Canada Hong Kong Japan China Singapore Denmark

Figure 1. UK Spain France Italy Lithuania Finland Portugal German

Global construction Austria The Netherlands Norway Turkey Australia Uganda Mauritius
indices curves for the
period of 2006–2015 Notes: The overall status of global CCIs is given in Figure (a). Figure (b) is complemented to
enlarge those cost indices falling in the interval in Figure (a) (black dashed wire frame)
 By inputting all of the raw data CCIij into Equations (1) and (2), the covariance matrix S was Synchronicity
derived. Then, the value of λ1 is computed as: of global CCIs
max l1 ¼ 4; 983:221:

Using Equation (4), CCIs are calculated and the results are shown in Table II. CCIs for all
samples are plotted in Figure 2. As shown in the figure, the reference curve sustains rising
over the past years, and it concurs with the trends of cost index curves of sampled
countries/regions.
In order to measure the extent to which the reference curve represents all of the CCI
curves, the eigenvalues λ are calculated.PVariances explained by the first principal
component are given, namely, d ¼ lmax = 20 i¼1 li ¼ 92:4% (λi ¼ 1, 2, …, 22). The results
suggest that the proportion of variance explained by the reference curve is as high as
92.4 percent. Thus, the reference curve is acceptable to reflect the overall trends of cost
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indices in the international construction industry.

Findings and discussion

Overall trends of global CCIs
As presented above, the reference curve images the overall trend of global CCIs
(see Figure 3). In the past few years, considerable contractors were aware of significant and

Time 2006Q1 2006Q2 2006Q3 2006Q4 2007Q1 2007Q2 2007Q3 2007Q4

CCI 100.22 101.81 103.41 105.50 107.56 109.11 110.57 113.16
Time 2008Q1 2008Q2 2008Q3 2008Q4 2009Q1 2009Q2 2009Q3 2009Q4
CCI 116.83 120.59 122.28 120.83 118.43 116.93 118.17 118.79
Time 2010Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3 2011Q4
CCI 119.65 120.64 121.83 123.36 125.72 128.10 130.10 131.60
Time 2012Q1 2012Q2 2012Q3 2012Q4 2013Q1 2013Q2 2013Q3 2013Q4
CCI 132.15 132.61 132.97 133.92 134.97 135.59 136.08 137.18
Time 2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 Table II.
CCI 137.24 137.79 138.64 139.12 139.85 139.90 140.43 Global CCI coefficients

Sample Points
260
Reference Curve
240
Construction Cost Index

220
200
180
160
140
120
100
1

Figure 2.
7Q

8Q

9Q

0Q

Q
12

13

14
0

Curves of construction
20

20

20

20

20

20

20

cost indices
Time (quarter)
 ECAM Global trend
140

Construction Cost Index

130

120

110
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100
3

3
Figure 3.
Q

Q
06

07

08

08

09

10

11

11

12

13

14

14

15
Overall trend of
20

20

20

20

20

20

20

20

20

20

20

20

20
global CCIs
Time (quarterly)

rapid growth of construction cost in the global construction industry (Vol, 2006).
Despite this, the increase of construction cost was a little bit beyond imagination. As shown
in Figure 3, the curve had a sharp increase before 2008 and dropped down thereafter
within one year. A gradual growth after the downturn year is thus confirmed. This echoes
with the views of Grogan (2011) that uptrend of global construction cost is inevitable as
driven by inflation.
Figure 4 mirrors the quarter-on-quarter growth rate of global CCIs. As shown in this
figure, the fluctuation range is between −2 and 4 percent, and it had been gentle over the
past years. A significant upward development before and after the second quarter of 2008 is
revealed. In effect, the growth rate suddenly fell down about 0.6 percent at that breakpoint.
The maximum growth rate reached to 3.24 percent in the first quarter of 2008, and rapidly
dropped to a minimum of −1.99 percent within three quarters. The growth feature of global
CCIs from 2008 to 2009 shows a significant volatility in the global market, which concurs

4%
Quarter-on-quarter growth rate
3%

2%
Growth Rate (%)

1%

0%

–1%

–2%

–3%
4

20 1

20 4

20 3

20 2

20 1

20 4

20 3

20 2
1

Figure 4.
Q

Q
06

07

08

09

09

10

11

12

12

13

14

15

Quarter-on-quarter
20

20

20

20

growth trend of GCCI

Time (quarterly)
 with previous studies on construction productivity under economic recession (Kapelko and Synchronicity
Abbott, 2016). While there needs more evidences for examination, the reason for such a of global CCIs
fluctuation is considered to be the emergence of global financial crisis in 2007. According to
CRU’s (a business intelligence company) global steel price index, steel resources were
tighten in supply under the background of the financial tsunami. The shortage of steel
resources resulted in sharp rising of cost of both iron and steel production. Meanwhile,
exchange rates from Bank of China imply that the dollar currency depreciated significantly
posed considerable pressure on global inflation.
In addition, the global financial tsunami had serious impacts on the construction
industry around the world including Britain, Canada, China and the USA. Most of these
countries had to face depression in the construction market. Construction activities were
remarkably languished under the pressure of adverse financial conditions, capital chain
rupture and market downturns (Nistorescu and Ploscaru, 2010). In effect, global CCIs fell
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significantly since the third quarter of 2008. The largest decline reached 1.99 percent with
the crisis intensified sharply in September 2008 (Tansey and Spillane, 2014). Until late 2009,
with the efforts of many countries implementing national economic stimulus plans
especially in the construction sector, global economy began to recover, and so global CCIs
did in the second quarter of 2009. The quartile growth rate reached 1.91 percent in 2011.
The overall fluctuation of global CCIs is generally in line with the change of annual global
GDP growth as shown in Figures 4 and 5 which is aligned with previous studies that
emphasize the existence of close linkages between construction sector and macroeconomics
(Wigren, 2011; Ng et al., 2009).

Synchronicity of CCIs
Figure 2 describes potential synchronicity between a sample’s cost indices and global cost
indices. Using Equations (5) and (6), deviation is calculated and the results are listed in Table III.
As shown in Figure 6, 20 samples except the USA and Singapore had significant synergistic
relationships with the reference curve, because the correlation coefficients are all above
0 at the significance level of 1 percent. In total, 18 samples had a relatively strong
correlated relationship (correlation coefficient W0.4) between domestic cost indices and
global CCIs. Moreover, 10 out of 18 samples were subject to extremely strong correlation.

5%
Annual growth rate
4%

3%
Growth Rate (%)

2%

1%

0%

–1%

–2%
05

06

07

08

09

10

11

12

13

14

15

16
20

20

20

20

20

20

20

20

20

20

20

20

Figure 5.
Time (yearly) Annual growth of
global GDP
Source: World Bank
 ECAM Significant co-movement of the cost indices is thus acknowledged. Previous studies on
international business cycle and property price have revealed co-movement across countries
( Jara and Romero, 2017; Mink et al., 2015; Hirata et al., 2013). As demonstrated in this study, the
same law applies to construction cost in the global construction industry.
As for the deviation, it is found that those countries and regions (e.g. Uganda, Hong
Kong, Turkey, Singapore and Lithuania) with relatively smaller sizes of construction
markets are likely to undergo much more vibration and inconsistence (τ o0.5 or g W1). The
top 8 nations based on synchronicity coefficients is Austria, Portugal, Denmark, Turkey,
Mauritius, Finland, Uganda and China. This is largely because that these economic entities
are externally oriented with rather smaller gross outputs. Specifically, China is a huge
country, but it was sampled in this study using the city of Shenzhen, which has been the
frontier of implementing the national policy of “reform and opening.” The top 8 for large
deviation with global trend are Hong Kong, Uganda, Turkey, Japan, USA, France, Singapore
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and the Netherlands, which indicates that changes of CCIs among these economies are much
subject to their own individual factors rather than global ones.
Meanwhile, there is an interesting phenomenon of clustering in Europe, where the
synchronicity coefficients and deviation degrees are very similar to each other. The reason
might be the common features of construction markets through European Union (EU).

America Singapore Japan Lithuania Hong Kong Uganda Turkey Canada Italy Australia France

τ −0.313** 0.216 0.387** 0.395** 0.798** 0.808** 0.865** 0.617** 0.679** 0.749** 0.765**
g 0.81 0.53 0.79 0.45 2.28 1.86 1.07 0.38 0.49 0.36 0.59
The Germany Spain Norway UK China Finland Mauritius Denmark Portugal Austria
Table III. Netherlands
Synchronicity and τ 0.779** 0.798** 0.799** 0.8** 0.8** 0.803** 0.816** 0.822** 0.843** 0.86** 0.889**
deviation of g 0.53 0.5 0.38 0.08 0.41 0.32 0.45 0.34 0.37 0.49 0.3
global CCIs Note: **Coefficient is significant at 1 percent level (two-tailed)

2.5
France HK
0.6
The Netherlands
Portugal Portugal
2.0 Uganda
Finland
0.4 Denmark
Australia UK
Mauritius
China Austria
1.5
0.2
0.70 0.75 0.80 0.85 0.90
Deviation

Turkey
1.0
The USA Japan

Singapore France
Italy Portugal
0.5 CanadaAustralia
Lithuania Denmark
Austria
China Mauritius

Figure 6. 0.0 Norway

Classification
of the samples in –0.4 –0.2 0.0 0.2 0.4 0.6 0.8 1.0
synchronicity of CCIs
Synchronicity
 For instance, small and medium enterprises are commonly the majority of market players; Synchronicity
EU members are suffering from severe new housebuilding market reduction and low of global CCIs
investment in non-residential market; rehabilitation and maintenance works have become
the engine of industrial growth (Nistorescu and Ploscaru, 2010). As pinpointed by Eurostat
(2015), construction outputs of EU members have been confronted with a continuous
decrease more or less. In addition, CCIs of some countries/regions have strong synchronicity
but with large vibration (e.g. Hong Kong, Uganda and Turkey), while other entities
(including Singapore and Lithuania) are characterized by less synchronicity with little
vibration. This gives the suggestion that the vibration of CCIs does not follow a strong
pattern. Furthermore, CCIs of the USA convey feeble synchronicity with the global
trend (correlation coefficient ¼ −0.313) and it has larger vibration than others (g ¼ 0.8). This
is probably due to the effects of Great Recession of 2008 and sluggish growth after that
(Zhang and He, 2011).
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Synchronicity with time

To map out more features of CCIs and the evolution of global CCIs, the changes of
synchronicity with time were calculated by using Equation (7). As displayed in Figure 7, the
median of Sirt for three pairs of countries are appraised: all economies studied in this paper
(All), economies from Asia (Asia) and economies from America and Europe (Am-Euro).
Figure 7 indicates that the overall synchronicity of CCIs had been more straightforward
recently; countries/regions from the USA and Europe had a higher degree of synchronicity
than Asian countries/regions as well as all countries/regions examined in the study.
The degrees of synchronicity for the three groups were converging toward the end of the
sample period. The increase in the degree of synchronization has been pronounced over the
last six years especially in Asia. This finding appears to be in parallel with the development
of housing economy and financial sector where synchronization had been enhancing in the
meanwhile ( Jara and Romero, 2017; Hirata et al., 2013). In previous studies, such a
phenomenon was attributed to the exposure to global factors including interest rates and
global liquidity. As noted by Ashuri and Shahandashti (2012), construction costs are closely
related to the current interest rates and capital formation. Meanwhile, advanced technology,
fast transportation, convenient communication, integrated market and trade liberalization
can accelerate the internationalization of construction businesses and realize the
synchronicity consequently (Ye et al., 2009).

2007 2008 2009 2010 2011 2012 2013 2014 2015

–2%

–4%
Growth Rate

–6% Global
Asia
Am-Euro
–8%

–10% Figure 7.
Synchronicity of
global CCIs with time
–12% (percentages)
 ECAM Another aspect worth of discussion is the dynamic synchronicity of CCI growth in the
Global Financial Crisis. During this period, CCIs were downturn together with widening
dispersion. One of the main reasons for such higher dispersion goes to different
development stages of construction industries. For instance, the USA and EU have been the
predominant construction markets for decades, while most of construction industries in
Asia are experiencing rapid development as driven by ambitious urbanization (Ye et al.,
2018). Another reason may be different economic situations of these countries/regions. In
effect, advanced economies had stepped into a new era with much more independence on the
construction industry, and the growth of the construction industries is rather steady
(Ng et al., 2009). Furthermore, similarity between the USA and EU in both the development
stages of construction industry and economic competitiveness can be another cause leading
to higher synchronicity. Nevertheless, in line with the general tendency of
CCI synchronicity, the degree of synchronization is assumed to be stable and fluctuates
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around a same degree.

Implications
The features of CCIs as presented above offer an overview of global construction cost
trends. Specifically, the identified CCIs synchronicity outlines a common pattern that most
of countries might be encountering in the current age, and the similarity of CCIs
development has been aggregating in the recent years. CCIs have been widely adopted by
cost estimators, investment planners and financial institutions for preparing bids,
estimating and overseeing (Lu, 2012). The diverse applications of CCI suggest that those
contractors who are ready to operate international business may find it beneficial to
understand those countries where CCIs are still unavailable. As Williams (1994) pointed out,
the trends of construction cost should be incorporated into bid preparation and taking
advantage of short-term fluctuations in material prices for material purchases. Therefore,
the results help contractors gain more confidence in struggle for overseas construction
works, manage construction cost uncertainty and improve decision making on bidding
prices. Furthermore, the findings indicate that methods of cost management in
multinational corporations may possibly simplified to general approaches in the future,
which can greatly improve production efficiency and reduce management cost.
The synchronicity degree of different country pairs provides reference to marginal profit
counting and it facilitates contractors to formulate competition strategies overseas. The
construction market is inextricably bound up with housing industries. Hence, CCIs are not
only a key indicator to oversee the construction industry but also play an important role in
the regulation of housing markets (Lovell and Smith, 2010). A better understanding of CCIs
across different countries enables to establish policy framework and attain sustainable
growth in both construction and housing. In addition, the research findings are available for
national governments to compose CCIs of their own particularly in developing countries
where they might have been aware of the complexity of establishing one. Previous studies
have attempted to address cost escalation factors in the area of construction project
management with the focus on the rapidly changing construction materials sector (Hwang
et al., 2012). In this sense, this study provides new insights into CCIs worldwide and gives a
prediction of global CCIs for multiple uses.

Conclusions
Construction cost is a key competitiveness indicator that deserves much attention of
contractors nowadays. However, the difficulty in owning a proper perception
of construction cost is surfacing in the international construction context in which
considerable contractors often fail to accumulate sufficient knowledge. In this study, a
reference curve of CCIs is extracted to reflect the major trend of global CCIs, and the
 synchronicity degree of CCIs and the vibration degree of CCIs are calculated. The findings Synchronicity
suggest that a significant synchronicity between global CCIs can be confirmed, the global of global CCIs
CCIs have been rising, and the growth rate has become relatively stable over the past
decades. It is worthwhile to note that subject to common factors, CCIs of different
construction markets at the national level can be linked to each other. However, some
specific factors may cause CCIs to vibrate in an economic entity.
The primary contributions of this study to the body of knowledge is addressing the
co-movement of CCIs all over the world and measuring the changes of synchronicity degree
with time and in different countries pairs. This common pattern facilitates a much
more reliable estimation for preparing bids and project planning when little information is
known about the project. It also provides references for policy makers to establish policy
frameworks to sustain growth in construction and housing markets. The major limitation,
however, is the availability of data: only 22 regions/countries are examined, the distribution
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of these regions/countries is imbalanced between different continents, various indices are

adopted around the world, of which statistical methods are not same, and as cost indices
are changing, the study can be promoted regularly to trace changes in synchronicity. Future
studies are recommended to generalize the results and to incorporate CCIs into the
formulation of competition strategies for international construction businesses.

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Further reading
Blair, A.N., Lye, L.M. and Campbell, W.J. (2011), “Forecasting construction cost escalation”, Canadian
Journal of Civil Engineering, Vol. 20 No. 4, pp. 602-612.
Department for Business Innovation & Skills (2013), Results of BIS Consultation on the Uses of
Construction Price and Cost Indices, London Department for Business Innovation and Skills
(issuing body), available at: https://assets.publishing.service.gov.uk/government/uploads/
system/uploads/attachment_data/file/186912/BIS-13-761-construction-price-cost-indices-user-
consultation-results.pdf
Flexner, E.B.B. (1987), The Random House Dictionary of the English Language, Random House,
New York, NY.
Fredricksa, G.A. and Nelsen, R.B. (2007), “On the relationship between Spearman’s rho and Kendall’s
tau for pairs of continuous random variables”, Journal of Statistical Planning & Inference,
Vol. 137 No. 7, pp. 2143-2150.
 Hua, G.B. (1996), “Residential construction demand forecasting using economic indicators: a Synchronicity
comparative study of artificial neural networks and multiple regression”, Construction of global CCIs
Management and Economics, Vol. 14 No. 1, pp. 25-34.
Kim, D.Y., Ashuri, B. and Han, S.H. (2012), “Financial valuation of investments in international
construction markets: real-options approach for market-entry decisions”, Journal of
Management in Engineering, Vol. 29 No. 4, pp. 355-368.
Stasiak-Betlejewska, R. and Potkány, M. (2015), “Construction costs analysis and its importance to the
economy”, Procedia Economics and Finance, Vol. 34, pp. 35-42.
Szmidt, E. and Kacprzyk, J. (2011), “The Spearman and Kendall rank correlation coefficients between
intuitionistic fuzzy sets”, Eusflat, doi: 10.2991/eusflat.2011.85.

Corresponding author
Kunhui Ye can be contacted at: Kunhui.YE@Gmail.com
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