An insight into the drag effect of water, land, and energy on economic growth across space and time: the application of improved Solow growth model

Economies that depend on natural resources can experience a resource drag effect when economic growth is limited by constraints on the availability of those resources. Therefore, this study uses panel data and the improved Solow growth model to explore the resource drag effect on China’s regional economic growth from 1987 to 2017 and makes innovative contributions to address these four gaps in the previous literature: the resources gap, the consistent measurement gap, the regional gap, and the temporal gap. The empirical results indicate that the resource drag effect reduced China’s overall annual economic growth by 0.58% during the study period, with reductions of 1.07%, 0.29%, 0.79%, and 0.46% in the Eastern, Western, Central, and Northeastern regions, respectively. In the meantime, the resources drag effect changed in individual regions and across regions. The results on energy drag are most notable. Policies such as “West-to-East Electricity Transmission” and “West-to-East Gas Transmission” promoted economic growth of the Eastern and Western Region, facilitating continued growth in both regions and attracted the return of labor to the Western region. The results indicate that the policies such as west-to-east energy transfer for helping to even out the economic growth conditions in different regions. Labor force mobility has also been important to alleviate resource dependence of agricultural production in Central regain, while other regions have managed to continually grow through improvements in inefficiency. Also, growth in some regions/provinces continues to depend upon increases in water, land, and energy availability and export. This will become increasingly problematic as the social prices of these inputs rise to account for environmental damage. Therefore, the government should adjust the industrial structure of each region to optimize use of resource endowments, alleviate dependence on natural resources, and achieve sustainable economic development.