Dynamic Causal Linkages Among Urbanization, Energy Consumption, Pollutant Emissions and Economic Growth in China

This study is an empirical attempt to explore the dynamic causal linkages among urbanization, energy consumption, pollutant emissions and economic growth, making use of simultaneous structural equations. A country panel of 30 Chinese provinces and cities, and three regional panels, for time span 2005 to 2014, have been estimated employing one-step System generalized method of moments (GMM) as well as one-step Difference GMM estimator. A unified model of economic growth, incorporating urbanization, energy consumption and pollutant emissions, has been developed. The empirics reveal that (1) urbanization positively drives energy consumption and pollutant emissions but is not driven by the same, (2) energy consumption positively drives pollutant emissions but is not driven by the same, (3) pollutant emissions negatively drives and is driven by economic growth, (4) economic growth positively drives and is driven by urbanization and energy consumption. These results are highly robust across all the panels. Based on these results, the policies proposed include (i) developing incentive/subsidy based urbanization mechanism supportive to induce more migration to western zone of China, (ii) developing rationing instrument concerning energy prices, setting the differentiated price structure based on urbanization level and type of fossil-fuels used, and (iii) directing further urbanization targeting less urbanized regions, like western zone, focusing low-emissions infrastructure and transport system to sustain high prospective growth rates.