Is China’s Productivity Growth A Mixed Blessing In Curbing Energy Intensity? By Baiding Hu Lincoln University, New Zealand

Motivations 1.Total factor productivity growth in China has been extensively studied in relation to the economic growth. 2.The effects of TFP growth on the energy demand per unit of output received limited attentions. 3.TFP growth is resulted from technical progress and economies of scale. 4.Both TE and ES can change energy intensity.

Variables 1.Energy intensity: standard coal equivalent energy in 10,000 tons per 100 million Yuan of Gross Value Output in the 1990 prices. 2.TFP: unobservable and therefore to be estimated. 3.Energy price: average of the producer’s price indices of power, coal and petroleum industries. 4.Energy intensity and TFP are for 12 subsectors that make up the industrial sector.

Measure of substitution 1.Substitutability determines price responsiveness. 2.Input cost shares can be defined as elasticities of the cost function w.r.t. the input prices (Jorgenson, 1986). 3.Thus, the cost share functions determine substitution, and 4.Energy cost share functions determine substitution between energy and non-energy, and different types of energy.

A measure of subsectoral (dis)similarity in substitution

An energy intensity model 1.Microeconomic theory in model building (Fisher- Vanden et al, 2004), TFP and prices major determinants. 2.Atheoretical/biophysical approach (Kaufmann, 1992), share of electricity, a measure of energy quality, a major determinant.

Empirical results 1.Evidence for AEEI in 6 of the 12 subsectors. 2.TFP growth was responsible for energy intensity reductions in the subsectors. 3.For 4 subsectors, TFP growth resulted in an increase in energy intensity. 4.TFP growth was insignificant for 2 subsectors 5.Energy intensity declined when energy price increased. The energy subsector responded to energy price changes differently – very inelastic compared with the other subsectors.

Concluding remarks 1.Research on China’s TFP mainly concerned it’s contribution to economic growth. 2.The present study investigates its impact on energy demand per unit of output at subsector level. 3.The evidence is mixed but more subsectors experienced an improvement in EI as a result of TFP growth. 4.A rise in energy price led to a reduction in EI in general. The amount of reduction was smaller for energy production.