The impact of clean energy consumption on economic growth in China: Is environmental regulation a curse or a blessing?

Abstract

Applying balanced panel data comprised of 27 provinces spanning the period from 2000 to 2015, this research estimates a production function accounting for heterogeneity by using the finite mixture model to provide, for the first time, a comprehensive assessment of the interrelationships among environmental regulation, clean energy consumption, and economic growth. It is noteworthy here that we calculate clean energy consumption at the level of China's provinces to avoid measurement error. The main findings can be summarized as follows. First, environmental regulation matters for the nexus between clean energy consumption and economic growth. Specifically, regulation enhances the positive effect of clean energy consumption on economic growth, thus prompting provinces to transform onto a clean growth path. Second, there exists heterogenous nexuses between clean energy consumption and economic growth in different growth paths, as clean energy consumption not only facilitates growth in paths B and C, but also restrains growth in path A. Third, ignoring measurement error of clean energy consumption and adopting a misspecification of the production function will bias estimation results when analyzing the impact of clean energy consumption on economic growth. In comparison to applying clean energy consumption data and the Solow decomposition framework accounting for heterogeneity, employing clean energy production data and using the traditional Solow decomposition framework will both underestimate the significance of clean energy consumption's impact on economic growth.