ENERGY CONSUMPTION, ECONOMIC DEVELOPMENT AND ENVIRONMENTAL IMPROVEMENT IN CHINA

As the biggest developing country in the world, China is facing more and more pressure to reduce emissions. However, can growth in energy consumption, economic output and environmental protection be achieved simultaneously in China? To solve the problem, this paper presents an analysis of the long-run and causal relationship between energy consumption, economic growth and environmental pollution in China from 1983-2010. The methodology uses is the Johansen cointegration test and Granger causality test based on a multivariate vector error correction model. Empirical results show that there are correlations between energy consumption, economic growth and environmental pollution in the long-term. The results of causality test indicate that economic growth is the cause for both energy consumption and environmental pollution, while energy consumption is the cause of environmental pollution and vice versa. The policy implication would be that energy conservation and pollution reduction policies may be undertaken without impeding economic growth.