Human capital, energy and economic growth in China: evidence from multivariate nonlinear Granger causality tests

Using a novel nonlinear multivariate Granger causality test and an augmented production function, which incorporates both physical and human capital, this study investigates the causal link between economic development and aggregate and disaggregate energy consumption in China during the period of 1965-2014. This is the first time the multivariate nonlinear Granger causality test is applied to measure the dependencies between growth, energy use and human capital in the context of China. Our results confirm the neutrality hypothesis for aggregate energy use as well as for the consumption of coal, natural gas and hydroelectricity. We also find unidirectional causality running from economic growth to oil consumption. Weak evidence in favor of the substitution effect between human capital and energy/coal use is observed in the linear approach. The findings suggest that energy conservation policies are feasible in China and policies advocating an improvement in human capital, associated with energy-specific skills, may be helpful in pollution reduction.