The Reflection of Ship Demolition Prices to Construction Costs in Turkey

Abstract

The ship demolition sector is one of the major suppliers of the steel market, even though its share in the total scrap market is very small. As the sector is a supplier of the steel market, it is inevitable that the price changes will be reflected in the construction sector, which is one of the largest steel customers. In this context, it is aimed in this study to determine whether the changes in demolition prices of Turkey, which is one of the main ship demolition locations in the world, have an effect on the construction costs in the country. In order to investigate possible relationships, Turkish demolition prices and Construction Cost Index (CCI) variables are used. The dataset covers the dates between January 2015 and December 2018, and consists of 48 monthly observations. Asymmetric causality test is used to determine the causal relationship between the variables by separating the shocks they contain as positive and negative. The econometric relationship is analyzed with both the USD currency price offered by Turkish demolition businesses and the corresponding TL currency prices in order to diversify the results. According to the results, causality relation from positive shocks in USD based demolition prices to the positive shocks in construction costs index is determined. In addition, there are causalities from positive shocks in TL based demolition prices to the positive shocks in construction cost index, and from negative shocks in demolition prices to the negative shocks in the index. This situation shows that the foreign exchange rates also play an important role in shaping the costs of the construction sector.

Keywords

• Construction cost,demolition price,exchange rate

References

1. Açık, A. & Başer, S. Ö. (2018a). The relationship between freight rates and demolition prices. Journal of International Trade and Economic Researches, 2(1): 16-32.
2. Açık, A. & Başer, S. Ö. (2018b). Market efficiency in ship demolition prices. Proceedings of the International Conference on Empirical Economics and Social Sciences, Bandırma, Turkey, pp. 780-792.
3. Açık, A. & Başer, S.Ö. (2017). The relationship between freight revenues and vessel disposal decisions. Journal of Research in Economics, Politics & Finance, 2(2): 96-112.
4. Adıgüzel, U., Bayat, T., Kayhan, S. & Nazlıoğlu, Ş. (2013). Oil prices and exchange rates in Brazil, India and Turkey: Time and frequency domain causality analysis. Research Journal of Politics, Economics and Management, 1(1): 49-73.
5. Athenian Shipbrokers S.A. (2019). Demolition prices. Retrieved in February 10, 2019 from https://hellenicshippingnews.com/.
6. Bal, D. P. & Rath, B. N. (2015). Nonlinear causality between crude oil price and exchange rate: A Comparative study of China and India. Energy Economics, 51: 149-156.
7. Brock, W., Dechert, D., Sheinkman, J., & LeBaron, B. (1996). A test for independence based on the correlation dimension. Econometric Reviews, 15(3): 197–235.
8. Brock,W., Dechect,W. & Scheinkman, J. (1987). A test for independence based on the correlation dimension. Working Paper. Department of Economics, University of Wisconsin, Madison.

9. Chiou-Wei, S. Z., Chen, C. F. & Zhu, Z. (2008). Economic growth and energy consumption revisited—Evidence from linear and nonlinear Granger causality. Energy Economics, 30(6): 3063-3076.
10. Dickey, D. A. & Fuller, W. A. (1979). Distribution of the estimators for autoregressive time series with a unit root. Journal of the American statistical association, 74(366a): 427-431.
11. Granger, C. W. (1969). Investigating causal relations by econometric models and cross-spectral methods. Econometrica: Journal of the Econometric Society, 424-438.
12. Hatemi-j, A. (2012a).. Asymmetric causality tests with an application. Empirical Economics, 43(1): 447-456.
13. Hatemi-J, A. (2012b). Is the UAE stock market integrated with the USA stock market? New evidence from asymmetric causality testing. Research in International Business and Finance, 26(2): 273-280.
14. Hatemi-J, A. & Uddin, G. S. (2012). Is the causal nexus of energy utilization and economic growth asymmetric in the US?. Economic Systems, 36(3): 461-469.
15. Kagkarakis, N. (2017). The effect of vessel supply on ship-demolition prices. Eurasian Journal of Economics and Finance, 5(1): 78-94.
16. Kagkarakis, N. D., Merikas, A. G. & Merika, A. (2016). Modelling and forecasting the demolition market in shipping. Maritime Policy & Management, 43(8): 1021-1035.
17. Karlis, T. & Polemis, D. (2016). Ship demolition activity: A monetary flow process approach. Pomorstvo, 30(2): 128-132.
18. Knapp, S., Kumar, S. N. & Remijn, A. B. (2008). Econometric analysis of the ship demolition market. Marine Policy, 32(6): 1023-1036.
19. Kumar, S. (2017). On the nonlinear relation between crude oil and gold. Resources Policy, 51: 219-224.
20. Lim, S. Y. & Ho, C. M. (2013). Nonlinearity in ASEAN-5 export-led growth model: Empirical evidence from nonparametric approach. Economic Modelling, 32: 136-145.
21. Merikas, A., Merika, A. & Sharma, A. (2015, January). Exploring price formation in the global ship demolition market. In 2015 Annual Meetings.
22. Mikelis, N.E. (2007). A statistical overview of ship recycling. Paper Presented at the International Symposium on Maritime Safety, Security and Environmental Protection, Athens, Greece.
23. Mikelis, N.E. (2013). Ship recycling markets and the impact of the Hong Kong Convention. Paper Presented at the International Conference on Ship Recycling, Malmo, Sweden.
24. Shahbaz, M., Van Hoang, T. H., Mahalik, M. K. & Roubaud, D. (2017). Energy consumption, financial development and economic growth in India: New evidence from a nonlinear and asymmetric analysis. Energy Economics, 63: 199-212.
25. Strandenes, S. P. (2010). Economics of the markets for ships, p. 217-234. In: Grammenos, C. (eds.), The handbook of maritime economics and business (2nd ed), Lloyd’s List, London, 1096p.
26. TCMB (2019). Exchange rates. Retrieved in February 10, 2019 from https://evds2.tcmb.gov.tr/index.php?/evds/serieMarket/#collapse_2.
27. Toda, H.Y. & Yamamoto, T. (1995). Statistical inference in vector autoregressions with possibly integrated processes. Journal of Econometrics, 66: 225–250.
28. Tugcu, C. T. & Topcu, M. (2018). Total, renewable and non-renewable energy consumption and economic growth: Revisiting the issue with an asymmetric point of view. Energy, 152: 64-74.
29. TUIK (2019). Construction Cost Index. Retrieved in February 10, 2019 from http://tuik.gov.tr/PreTablo.do?alt_id=1077.
30. Umar, M. & Dahalan, J. (2016). An application of asymmetric Toda-Yamamoto causality on exchange rate-inflation differentials in emerging economies. International Journal of Economics and Financial Issues, 6(2): 420-426.
31. Yin, J. & Fan, L. (2018). Survival analysis of the world ship demolition market. Transport Policy, 63: 141-156.