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Impact of interaction between financial development, urbanization, and energy consumption in China

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  • Xiaorui Liu
  • Wen Guo
  • Qiang Feng
  • Peng Wang

Abstract

Given the urgent need for China to reduce the growth rate of energy consumption (EC), the relationship between financial development (FD), urbanization (UR), and EC is directly related to the effectiveness of China's current ecological civilization construction. This study analyzes the internal relationship between the three from the perspectives of financial scale (FD1), financial structure (FD2), and financial efficiency (FD3) through the generalized method of moments (GMM) estimation, impulse response, and variance decomposition of the panel vector autoregression (PVAR) model. The following conclusions are derived. First, the results of the PVAR model show that when FD is measured with FD1, FD2, and FD3, each variable has path dependence, and the lag-phase-one term of each variable has a strengthening effect on itself. Second, based on the pulse response diagram, a positive response occurs after FD1 and FD2 give a standardized shock to EC, but a negative response occurs when FD is characterized by FD3. When FD is measured with FD1, a positive response occurs after UR gives a normalized shock to EC. When FD is measured with FD2 and FD3, there is a weak negative response. Third, the results of the variance decomposition show that the changes of FD, UR, and EC rely more on their own inertia. Although the impact of FD and UR on EC has an increasing trend, the impact is small. Therefore, local governments should rationally control the financial scale, optimize the financial structure, improve the financial efficiency, and strengthen the propaganda of energy conservation.

Suggested Citation

  • Xiaorui Liu & Wen Guo & Qiang Feng & Peng Wang, 2023. "Impact of interaction between financial development, urbanization, and energy consumption in China," Energy & Environment, , vol. 34(8), pages 2932-2957, December.
    • Handle: RePEc:sae:engenv:v:34:y:2023:i:8:p:2932-2957
    DOI: 10.1177/0958305X221120261
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