On the nonlinear relationship between energy consumption and economic development in China: new evidence from panel data threshold estimations

Abstract

According to China’s thirteenth “Five-Year Plan (2016–2020)”, the economic and social transition to the sustainable style has become the consensus of the Chinese government and the academic world. Given the important role of energy in China’s economic and social development, it is quite important to understand the effects of energy consumption on economic development. Despite a large body of literature in this field, very few studies have investigated the nonlinear relationship between the two. Based on the neoclassical growth model and the Cobb–Douglas production function, the present study uses the panel threshold regression model and provincial panel data covering the period 1985–2014 to investigate whether a nonlinear relationship exists between energy consumption and economic growth. The estimation results indicate that, although there is no evidence for such a nonlinear relationship for the whole nation, a single threshold exists for both eastern and noneastern regions; however, the elasticity of GDP with respect to energy consumption does not vary significantly either before and after the threshold is reached. Therefore, as China’s economy enters the phase of “new normal,” with a relatively lower growth rate, sufficient and reliable energy input is still required to maintain reasonable and sustainable economic growth.