Sustainable Development of China's Industrial Economy: An Empirical Study of the Period 2001-2011

In this paper, we investigate the implications of continued industrial economic growth on environmental pollution in China in order to inform strategic policies to achieve sustainable development of the industrial sector. We calculate green total factor productivity (TFP) for each industrial sector by estimating the Global Malmquist-Luenberger (GML) index using a Slacks-based Measure Directional Distance Function (SBM-DDF). We find that the green TFP increased at an average annual rate of approximately 6% over the 11-year period. A slightly greater portion of this growth is attributable to technological progress (57%) rather than technical efficiency (43%). To investigate the relationship between industrial economic growth and pollutant levels, we first adopt a hierarchical clustering procedure to group all industrial sectors into green-intensive, intermediate and extensive clusters based on the contribution of green TFP to industrial economic growth within respective industries. Based on an econometric estimation of the relationship between pollutant levels and industrial GDP per capita, we find clear evidence in favor of the Environmental Kuznets Curve (EKC) theory only with wastewater as the primary pollutant of interest and only with industrial sectors that are already relatively pollution intensive. We find no evidence in support of the EKC theory when sulfur dioxide or solid waste is the pollutant of major concern. In general, blindly accelerating industrial economic growth will likely worsen environmental quality, unless reasonable environmental policy interventions are implemented.