Study on the Dynamic Relationship Between Economic Growth and China Energy Based on Cointegration Analysis and Impulse Response Function

Abstract

In recent years, China's economy has been growing rapidly and caused a dramatic increase to energy demand. To investigate the dynamic relationship between economic growth and China energy, a cointegration analysis and an error-correction model are used in this study to examine the long-term equilibrium relationship between gross domestic product (GDP) and energy production (EP) and energy consumption over the period 1980 to 2005. The results indicate that the two variables are cointegrated, but specifically, the growth of GDP forcefully drives energy to increase while energy has a little effect on GDP. Furthermore, the impulse response function is used to trace the dynamic response paths of shocks to the system. As a result of recent energy-saving policy, EP and consumption present a sinusoidal growth with a lag length of 2-3 years. The policy implication of this finding is that through the measures of controlling economic growing speed and conducting energy-saving policy continuously, the target of reducing energy intensity for 20% is not difficult to achieve.