Retesting the causality between energy consumption and GDP in China: Evidence from sectoral and regional analyses using dynamic panel data

Abstract

The increasing attention on energy policy needs has provided a renewed stimulus to research the linkages between energy consumption and economic performance in China. This paper examined the causal relationship between energy consumption and economic growth in the regional and sectoral aspects by adopting provincial panel data in China from 1995 to 2008. The results indicate that economic growth causes more energy consumption in China not only at the national level but also at the regional and sectoral levels. Then the Eastern Region and the industrial sector show results quite similar to that of the whole country, in which a bidirectional causality relationship exists between energy consumption and economic growth. The implication for energy policies in China is that the Eastern Region and the industrial sector should play a leading role in the adjustment of energy consumption patterns and the transformation of the economy structure. Energy prices have limited effects on energy consumption but do have effects on economic growth because the energy price mechanism is more government-oriented than market-oriented in China.