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Directed Technical Change, Capital Intensity Increase and Energy Transition: Evidence from China

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  • Dong Wang, Amin Mugera, and Ben White

Abstract

This paper analyses the causes of China's energy transition since 1978 when the economic reform policy was launched. We aim to determine if increasing capital intensity in the Chinese economy is driving a shift in the energy mix towards modern energy sources, such as solar electricity. The empirical investigation is based on national level time series data from 1978 to 2015. The results of a Granger Causality test show that increasing capital intensity causes transition to modern energy in the long run, but not vice versa. The impulse-response analysis, based on the Johanson cointegration and vector error correction model (VECM), verifies that capital intensity determines energy transition in the long-run and the adjustment period to an exogenous shock from capital intensity is around five years. This is in line with China's National Five-year Plans which often introduce major shifts in energy and industrial policy. We conclude China's energy transition is driven by capital deepening and biased technical change towards capital-intensive modern energy in the long run. The rate of change is increased by exogenous investment shocks partly as a result of policy initiatives introduced by China's Five Year Plans.

Suggested Citation

  • Dong Wang, Amin Mugera, and Ben White, 2019. "Directed Technical Change, Capital Intensity Increase and Energy Transition: Evidence from China," The Energy Journal, International Association for Energy Economics, vol. 0(The New E).
    • Handle: RePEc:aen:journl:ej40-si1-white
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    Cited by:

    1. Dong Wang & Ben White & Amin Mugera & Bei Wang, 2022. "Energy Transition and Economic Development in China: A National and Sectorial Analysis from a New Structural Economics Perspectives," Sustainability, MDPI, vol. 14(24), pages 1-19, December.
    2. Liang Liu & Lianshui Li, 2021. "The effect of directed technical change on carbon dioxide emissions: evidence from China’s industrial sector at the provincial level," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 107(3), pages 2463-2486, July.

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    JEL classification:

    • F0 - International Economics - - General

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