Does energy and CO2 emissions performance of China benefit from regional integration?

Abstract

Low energy and carbon efficiency and widespread market segmentation are two stylized facts of China's regional economies. This paper evaluates energy and CO2 emissions performance using a newly developed non-radial directional distance function, and China's regional integration is investigated using a price approach. The study points to evidence that: (1) most provinces do not perform efficiently in terms of energy use and CO2 emissions with performance gaps among regions becoming larger, indicating regional segmentation; (2) magnitude of regional integration has increased dramatically, while China's eastern provinces are less integrated in domestic side due to their convenience to international openness; (3) regional integration has significant and robust positive effects on energy and CO2 emissions performance with over 70% of effects coming from artificial barriers, rather than geographical distance; (4) international openness is also beneficial for promoting energy and CO2 emissions performance, but cannot substitute for regional integration because of China's specialization in energy-intensive manufacturing in the global economy. Based on the empirical findings, we suggest that central government should continue to encourage regional integration given that local governments have incentives to fragment because it is a way of promoting energy and CO2 emissions performance and stimulating economy at the same time.