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Circular city construction and energy efficiency: Evidence from China’s ‘circular economy demonstration cities’

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  • Wang, Rongji
  • Zhang, Yan
  • Wan, Wei
  • Bai, Dongbei
  • Wang, Jue

Abstract

Improving energy efficiency is an important pathway for developing countries to achieve carbon emission reduction. This paper examines the impact of China’s environmental policy—the Circular Economy Demonstration Cities (CEDCs)—on energy efficiency at the prefecture level, adopting both theoretical and empirical approaches. Our findings indicate that the implementation of CEDCs significantly enhances energy efficiency, and the conclusion still holds after various robustness tests. Mechanism analysis reveals that the improvement in energy efficiency is primarily driven by increased green technological innovation, the deepening of green finance development, industrial upgrading and greater public attention to circular economy practices. Heterogeneity analysis further indicates that the policy effects are more pronounced in resource-based cities characterized by higher levels of industrial agglomeration and environmental regulation. Additionally, soft constraints on economic growth targets help to reinforce the effectiveness of the CEDCs policy. Further analysis shows that the CEDCs policy can effectively enhance social welfare and constitutes an important measure for achieving Pareto improvements. This study provides an institutional explanation for the improvement of energy efficiency in China and offers important insights for developing countries in designing incentive-compatible policy mechanisms.

Suggested Citation

  • Wang, Rongji & Zhang, Yan & Wan, Wei & Bai, Dongbei & Wang, Jue, 2025. "Circular city construction and energy efficiency: Evidence from China’s ‘circular economy demonstration cities’," Economic Analysis and Policy, Elsevier, vol. 88(C), pages 817-844.
    • Handle: RePEc:eee:ecanpo:v:88:y:2025:i:c:p:817-844
    DOI: 10.1016/j.eap.2025.10.004
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