‘Neighbors As Competitors’ or ‘Neighbors as Partners’ : How Does Market Segmentation Affect Regional Energy Efficiency in China?

Existing studies have focused on the impact of inefficient resource allocation on energy performance in China's factor market, but neglected to explore the underlying reason from the perspective of market segmentation. In this paper, the epsilon-based measure model and price index method are employed to measure energy efficiency and examine the degrees of market segmentation. We then use the Tobit model to empirically investigate the impact of market segmentation. The results show that the energy efficiency gap is narrowing significantly between the eastern and central regions, but insignificantly between the western and eastern. The western provinces still have more segmented markets than the eastern. Econometric analysis indicates that market segmentation is negative to China's energy efficiency significantly. This finding remains robust but is of a regional heterogeneity. We also find that factor market distortion, enterprises' R&D investment, and industrial agglomeration are three mechanisms through which market segmentation affects energy efficiency, and a Race to the Top competition centering on market segmentation among Chinese local officials triggers a long-term inhibition to energy efficiency