Temporal Causal Relationship between Resource Use and Economic Growth in East China

Abstract

The present paper attempts to combine cointegration theory and the material flow analysis approach to examine the causal relationship between resource use and real GDP in Jiangsu Province in East China. The study considers the period from 1990 to 2007. We use direct material input as the proxy variable for resource use. Our estimation indicates that real GDP and resource use are cointegrated and there is only unidirectional long-run Granger causality running from resource use to real GDP, but not vice versa. The estimation results mean that resources are a limiting factor in terms of economic growth, and, therefore, strategies should be adopted for more vigorous economic development and consistent resource use in East China. Furthermore, the novel idea and methodology involved in the present study can be readily extended to cover other regions for the analysis of the relationship between resource use and economic growth. © 2011 The Authors China & World Economy © 2011 Institute of World Economics and Politics, Chinese Academy of Social Sciences.