Can functional urban specialization improve industrial energy efficiency? Empirical evidence from China

Previous literatures have focused on the impact of sectorial urban specialization on energy efficiency. As a future trend of urban specialization, the importance of functional urban specialization (FUS) in improving industrial energy efficiency is ignored. To fill this gap, this study explores the impact of FUS on industrial energy efficiency. Utilizing prefecture-level city data from 2005 to 2017, this paper adopts an extended stochastic frontier analysis (SFA) model to measure industrial energy efficiency. Hierarchical linear model (HLM) is used for the estimation of the nested data with cluster-level and city-level, which reduces the bias by nested estimation. The results show that 1) city-level industrial energy efficiency has increased from 0.4133 in 2005 to 0.4461 in 2017, mainly driven by peripheral cities rather than core cities; 2) FUS has a significantly positive impact on industrial energy efficiency in full sample and peripheral cities; 3) FUS reduces the negative effects of city scale and the positive effects of investment and enhances the positive effects of transportation. In addition, the positive effects of FUS on industrial energy efficiency is significant only at low levels of FUS. Practicable policies to improve industrial energy efficiency in China are suggested and applicable to other emerging economies.