The Effects of Energy Consumption, Economic Growth and Financial Development on CO 2 Emissions in China: A VECM Approach

Jianhui Jian, Xiaojie Fan, Pinglin He, Hao Xiong and Huayu Shen
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Jianhui Jian: School of Economics and Management, North China Electric Power University, Beijing 102206, China
Xiaojie Fan: School of Economics and Management, North China Electric Power University, Beijing 102206, China
Pinglin He: School of Economics and Management, North China Electric Power University, Beijing 102206, China
Hao Xiong: School of Accounting, Guizhou University of Finance and Economics, Guizhou province, Guiyang 550025, China
Huayu Shen: School of Economics and Management, North China Electric Power University, Beijing 102206, China

Sustainability, 2019, vol. 11, issue 18, 1-16

Abstract: As one of the largest energy consumers and the greatest emitter of CO 2 in the world, China now confronts the dual challenge of reducing energy use while continuing to foster economic growth. To overcome this issue, there is a need of comprehensive economic, financial, and energy policy reforms to promote sustainable development. The objective of this paper is to examine the effects of economic growth, financial development and energy consumption on carbon dioxide emission (CO 2 ) in China from 1982 to 2017. The study applies Johansen cointegration test and vector error correction model (VECM) to investigate the long-term equilibrium and short-term causality relationship among the four variables. The causality is also checked by using the innovative accounting approach (IAA). The empirical results show the long-term cointegration relationship between them. Evidence shows that a unidirectional Granger causality running from energy consumption to financial development. Financial development and energy consumption have a statistically significant positive impact on CO 2 emissions. In the long run, economic growth can curb CO 2 emissions. Hence, financial innovation should be encouraged in the country to meet the demand of sustainable development. Nevertheless, optimizing energy structure and increasing the efficiency of energy utilization can never be left out from the process of development. We add light to policy makers with the construction of carbon trading to effectively address greenhouse effects in China.

Keywords: financial development; carbon dioxide emissions; energy consumption; economic growth; VECM model (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (23)

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