Impact of Technological Progress and Industrial Structure Distortion on Energy Intensity in China

Abstract

The paper measures the industrial structure distortion (ISD) index by region in China from 1978 to 2016 using data on employment and output shares of the three industries. It also analyzes the impact of ISDs by region on energy intensity using a spatial panel model. The results show that since the reform and opening up, the ISD index by region has declined significantly, with the lowest index in the eastern region, the medium one in the central region and the highest in the western region. The estimated results of the spatial econometric model indicate that there is a significant inter-regional dependence of energy intensity in China; there is a significant indirect effect of ISD, despite no significant direct effect on energy intensity; in terms of total effect, ISD is an important factor inhibiting the decline of energy intensity. The results also unveil that higher energy prices and foreign trade are positive factors declining energy intensity, while FDI worsens energy intensity and R&D spending has no significant positive impact on curbing energy intensity. In order to reduce energy intensity, China should work to eliminate the micro cause of ISDs, promote the transfer of agricultural labor, establish a market-oriented mechanism for energy price formation, and enhance the efficiency of R&D spending.