Modeling heterogeneous dynamic interactions among energy investment, SO2 emissions and economic performance in regional China

Massive investments in energy industry may either promote or mitigate the air pollution which is likely to influence the economic performance. In light of this, the current work is an empirical examination of heterogeneous dynamic causal interactions among energy investment, sulphur dioxide (SO₂) emissions and economic growth in regional China. A modified STIRPAT model is developed to introduce energy investment as a determinant of technology. Based on a modified model, a simultaneous equations system has been established to examine the three-way causal interactions among the variables of interest. As a first step, an error-correction-based second generation Westerlund (Oxford Bulletin of Economics and Statistics 69: 0305–9049, (2007). cointegration has been employed and found the long-run relationship. The simultaneous equations have been estimated by employing second generation dynamic common correlated effects mean group estimator (DCCEMGE) for 30 Chinese provinces and cities from 2001 to 2017. The empirical analysis has revealed that the energy investment induces emissions promotion effect while economic growth introduces emissions curtailment effect. However, the emissions curtailment effect remained slightly stronger than emissions promotion effect both at country and regional levels. Further, the energy investment growth uncovered economic performance enhancement effect. Furthermore, the SO₂ emissions growth induced economic performance deterioration effect. In this regard, the economic performance deterioration effect exceeded the economic performance enhancement effect. Besides, there is a bidirectional causality operative between SO₂ emissions and gross regional product (GRP) growth for the country as well as regional samples. On the contrary, a positive bilateral causal relationship between energy investment and GRP growth is found for the country as well as regional samples. Similarly, it has been found that there exists a positive bilateral causal association between SO₂ emissions and energy investment. Graphical abstract