Energy Consumption and Economic Growth in China´s Industrial Sectors

This paper applies panel methodology to examine the short-run dynamics, the long-run equilibrium relationships and the causal relationship between energy consumption and economic growth. It is based on China´s 37 industrial sectors over the period 1998 to 2010. Tests for panel unit roots, co integration in heterogeneous panels and panel causality are employed in a bivariate panel vector error correction model (PVECM), which is estimated by the system generalized moment method (SYS-GMM). The results show evidence of a long-run equilibrium relationship between economic growth and energy consumption, 1% increase in the energy consumption will lead to an increase of 0.87% in real value added of industrial sectors. It is found that a strong bidirectional causal relationship is found between these two series. In short run, there is a unidirectional causality running from economic growth to energy consumption, but in long run, this relationship is reversed, there is a unidirectional causality running from energy consumption to economic growth.