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Growth Sources of Green Economy and Energy Consumption in China: New Evidence Accounting for Heterogeneous Regimes

Abstract:
This paper proposes an extended Solow decomposition framework with a finite mixture model, which is incorporated to account for heterogeneous regimes. The model decomposes green economy into two different components, namely, green total factor productivity and factor endowment. Then, we reestimate the growth sources of green economy and especially the importance of energy consumption in China’s provincial industries over 2000–2015. The empirical results suggest that there are three green growth regimes across Chinese provinces for overall economy and different industries. Specifically, some provinces switch regime over time, while the others maintain the same regime. Furthermore, when controlling for regime heterogeneity, the contribution of factor endowment decreases and that of green total factor productivity increases. With respect to energy consumption, traditional methods overestimate its importance in the primary and tertiary industries and underestimate that in the secondary industry. In addition, the reliance of China’s overall economy and the secondary and tertiary industries on energy consumption decreases as economy develops.

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Keywords: Energy consumption, Growth sources, Green economy, Heterogeneous regimes, Finite mixture model, China

DOI: 10.5547/01956574.41.6.gliu

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Published in Volume 41, Number 6 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.

 

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