Urbanization and Energy Intensity: A Province-level Study for China

In March 2014 China announced its long awaited plan for managing the migration of the rural population into already overcrowded urban areas. The so called "new style" of urbanization has potentially important implications for China's energy use although the relationship between urbanization and energy intensity is not straight-forward. In this paper we investigate the impact of urbanization and industrialization on the intensity of energy use in China using a balanced panel of 29 provinces for the period 1997 to 2010. Our empirical approach is to use three alternative measures of urbanization and employ augmented mean group (AMG) estimators to allow for heterogeneity in the estimation of the slope coefficients and cross sectional dependence. We demonstrate that the impact of urbanization on energy intensity is sensitive to the econometric modelling approach. Our preferred AMG results show, in contrast to earlier studies, that for this time period urbanization appears to have little or no short or long run impact on energy intensity athough in further results we find that urbanization does appear to have a negative impact on energy intensity in the more developed east but a sometimes positive effect for the western and central regions. Our results suggest that China's recent policy to encourage greater urbanization may not necessarily lead to a significant increase in province level energy intensities but nor will it lead to some of the energy efficiency gains some expect.