The spillovers of foreign direct investment and the convergence of energy intensity

Abstract

The imbalance and insufficiency of China's regional economic development has led to huge differences in regional energy efficiency. Reducing the differences in regional energy efficiency has become an urgent energy issue in China. The constant absorption of foreign direct investment (FDI) has brought advanced technologies to China, which has an important impact on China's energy efficiency. To explore whether FDI can reduce regional energy efficiency differences, this paper investigates the existence of energy intensity convergence while incorporating foreign direct investment (FDI). Since existing research on regional energy intensity convergence lacks of consideration of the data spatial dependence, we focus on spatial econometric model to test energy intensity convergence. We use panel data of 30 provinces in China over the period of 2005–2014 to test energy intensity convergence by β convergence model. The empirical results show that considering the spatial dependence of the data, FDI can promote the formation of conditional energy intensity convergence. Further analysis found that the spillover effect of FDI plays an important role in this formation. In addition, the convergence speed accelerates after considering the spatial dependence. Finally, the spillover effect of FDI, which is global, inhibits the declining speed of energy intensity during the research period. The scale effect of FDI and energy rebound effect plays an important role in the effect of FDI on energy intensity. These results show that guiding foreign investment more reasonably in each province in China can make contributions to the reduction of energy efficiency differences.