Change in the South Asian construction sector: insights from a structural decomposition approach

Abstract South Asia’s construction sector faces the dual challenge of sustaining growth while addressing environmental sustainability. Despite its economic significance, integrated analyses of the sector's structural dynamics and regional trade dependencies remain limited. This study fills this gap by conducting a regionally integrated structural decomposition analysis (SDA) of the construction sector across six South Asian countries (Bangladesh, Bhutan, Maldives, Nepal, Pakistan, Sri Lanka) from 2012–2022. Using the Asian Development Bank's multiregional input–output tables, this paper examines how final demand, technological change, and source-specific import substitution (China, India, Rest of the World) drive shifts in output, value added, and CO₂ emissions. Key findings highlight structural vulnerabilities: final demand dominates growth, yet expansion is constrained by rising import dependence—particularly on inputs from China and India—which limits domestic value creation and heightens supply chain risks. Technological progress stagnates or declines in most countries, reflecting inefficiencies in production. Environmentally, construction activity correlates with rising CO₂ emissions (e.g., in Bhutan, Maldives, Bangladesh) due to carbon-intensive practices. A frequent decoupling of output growth from proportional value-added gains underscores a structurally fragile growth model vulnerable to external shocks. This study advances SDA methodology by disaggregating import substitution to reflect South Asia's trade dynamics, offering policymakers insights to address systemic constraints. Recommendations emphasize technological upgrading, resilient domestic supply chains, and low-carbon policies aligned with SDGs 9 and 11. By disentangling source-specific dependencies and environmental-economic trade-offs, this paper provides actionable strategies for sustainable construction sector growth in the region.