Urbanization, economic growth, and carbon dioxide emissions in China: A panel cointegration and causality analysis

Elucidating the complex mechanism between urbanization, economic growth, carbon dioxide emissions is fundamental necessary to inform effective strategies on energy saving and emission reduction in China. Based on a balanced panel data of 31 provinces in China over the period 1997-2010, this study empirically examines the relationships among urbanization, economic growth and carbon dioxide (CO2) emissions at the national and regional levels using panel cointegration and vector error correction model and Granger causality tests. Results showed that urbanization, economic growth and CO2 emissions are integrated of order one. Urbanization contributes to economic growth, both of which increase CO2 emissions in China and its eastern, central and western regions. The impact of urbanization on CO2 emissions in the western region was larger than that in the eastern and central regions. But economic growth had a larger impact on CO2 emissions in the eastern region than that in the central and western regions. Panel causality analysis revealed a bidirectional long-run causal relationship among urbanization, economic growth and CO2 emissions, indicating that in the long run, urbanization does have a causal effect on economic growth in China, both of which have causal effect on CO2 emissions. At the regional level, we also found a bidirectional long-run causality between land urbanization and economic growth in eastern and central China. These results demonstrated that it might be difficult for China to pursue carbon emissions reduction policy and to control urban expansion without impeding economic growth in the long run. In the short-run, we observed a unidirectional causation running from land urbanization to CO2 emissions and from economic growth to CO2 emissions in the eastern and central regions. Further investigations revealed an inverted N-shaped relationship between CO2 emissions and economic growth in China, not supporting the environmental Kuznets curve (EKC) hypothesis. Our empirical findings have an important reference value for policy-makers in formulating effective energy saving and emission reduction strategies for China.