The Policy Implication for Emission Reduction of Dynamics between Energy Consumption and Economic Growth in China

Abstract

What is the relationship between China's energy consumption and economic growth? Will energy saving and emission cutting measures adversely affect economic growth? Based on the neoclassical production model, this study performs empirical analysis with the longest time series available in China. We combine the Directed A cyclic Graphs (DAG) with Cholesky decomposition to find the contemporaneous causal flows between energy and GDP, then employ the error correction model and impulse response to study the dynamics among these variables both in the long run and in the short run, finally we elaborate the important implication of dynamics between energy consumption and GDP growth for future emission reduction policy.