Electricity Consumption in China: The Effects of Financial Development and Trade Openness

Abstract

As China is facing the double pressure of economic growth as well as energy-saving and reduction of emissions, reducing electricity consumption without affecting economic development is a challenging and critical issue. Based on 31 provincial panel’s data in China from 2004 to 2018, this study empirically analyzes the direction and degree of the impact of financial development and trade openness on electricity consumption using the spatial econometric approach and panel vector autoregression (PVAR) model. The results indicate that China’s electricity consumption presents a significant spatial spill over effect, and the spatial agglomeration of electricity consumption in local regions is mainly HH clusters. A 1% positive change in financial development causes an increase of 0.089% in electricity consumption, but a 1% rise in financial development reduces electricity consumption of neighboring regions by 0.051%. A 1% positive change in trade openness decreases electricity consumption by 0.051%, while the spatial spillover effect of trade openness is not significant. It is also found that financial development has a long-term promoting effect on electricity consumption, while trade openness has a long-term inhibiting effect on electricity consumption.