The Relationship between Energy Consumption and GDP Growth in China

Abstract

In the last 30 years, China has achieved rapid economic growth. Energy played important roles in supporting the development of China and now China become the largest energy consumer country in the world. Based on the time series data of energy consumption and GDP from 1978-2011 in China, we explored the relationship between energy consumption and GDP using ADF, co-integrate and VECM test. There were long run equilibrium relationships between GDP and energy consumption and the consumption of disaggregate categories of energy, such as coal, oil and electricity except gas

Moreover, two-way short term causalities running between GDP and energy consumption, coal and electricity consumption and one-way long term causality running from oil consumption to GDP were also founded. As a secondary contribution, we investigate the decoupling trend between GDP and the aggregate energy consumption. All the empirical results support the notion that although China economy still relied on the energy consumption, there is also weak decoupling trend. Finally, we gave policy implications upon the estimation results regarding current Chinese economy development policies, such as exploiting new energies and speeding up innovation.