Does industrial structure distortion impact the energy intensity in China?

Industrial structure change can affect aggregate energy intensity through sector transfer effect. There are still obvious structural distortions in the process of China's industrial structure change. This structural distortion will inevitably have an adverse impact on the allocation efficiency of resources (including energy), which may hinder the decline of aggregate energy intensity. Based on the idea of equalized labor productivity across sectors under the equilibrium of free entry and exit, this paper measures the indus trial structure distortion index of China's provinces from 1978 to 2016, and examines the impact of the structural distortion index on China's energy intensity by using conventional panel data model estimators. The results show that during the period of 1978-2016, China's industrial structure distortion index decreased significantly, and the distortion index was a key determinant of the energy intensity at the province level. We also found that energy price and import and export were important factors driving the decline of China's energy intensity, and FDI had an obvious negative effect, while R&D expenditure had no significant impact on it. In order to reduce the energy intensity, China should dedicate to eliminating the micro-roots of the industrial structure distortion, establish a market-based factor price formation mechanism. (C) 2020 Institution of Chemical Engineers. Published by Elsevier B.V. All rights reserved.

Automated summary

Changes in industrial structure can impact energy intensity, with China experiencing structural distortions that affect resource allocation efficiency. Research shows a correlation between decreasing industrial structure distortion index and declining energy intensity, while foreign direct investment has a negative impact on energy intensity.