Abstract
In this article, the relationship between energy consumption and economic growth is examined from the viewpoint of China’s industrial sectors. Panel data from 37 industrial sectors in China covering the period from 1998 to 2010 was used in this study. Not only first generation panel unit root tests and panel cointegration tests, but also second generation tests that account for dependence between cross-sectional units were employed. The empirical results reveal that both energy consumption and economic growth are integrated as order one, and they are cointegrated. Panel fully modified ordinary least squares estimators show that a 1% increase in energy consumption increases the real value added of industrial sectors by 0.871%, and a 1% increase in real value added of industrial sectors increases energy consumption by 1.103%. The panel vector error correction models for causality tests are estimated by a system generalized moment method. We find a unidirectional causal relation running from economic growth to energy consumption in the shortrun. In the long run, however, there is evidence of a unidirectional causality running from energy consumption to economic growth.
Highlights
Energy is an indispensable input in the economic activity process
We find that in the short run a unidirectional causal relation is running from economic growth to energy consumption while the direction is reversed in the long run
In Omri [5], 48 country-specific studies about the causal relationship between energy consumption and economic growth over 1978–2012 were summarized, and the results revealed that 21%, 23%, 29%, and 27% supported the above four types of hypothesis, respectively,which means that empirical research about this field has not come to a consensus conclusion
Summary
Energy is an indispensable input in the economic activity process. Since the reform and openness in. We use a data panel of 37 industrial sectors in China from 1998 to 2010 to examine the long-run equilibrium relationship and the causal relationship between energy consumption and economic growth. We examine these variables using panel unit root tests and panel cointegration tests. We find that in the short run a unidirectional causal relation is running from economic growth to energy consumption while the direction is reversed in the long run. The rest of the paper is organized as follows: Section 2 provides a brief literature review of energy consumption and economic growth from the viewpoint of data structure.
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