Economic growth, regional disparities and energy demand in China

Using the panel data of 27 provinces between 1978 and 2008, we employed a instrumental regression technique to examine the relationship between economic growth, energy demand/production and the related policies in China. The empirical results show that forming a cross-province integrated energy market will in general reduce the response of equilibrium user costs of energy products to their local demand and production, through cross-regional energy transfer (including both energy trade and cross-regional reallocation). In particular, reducing transportation costs and improving marketization level are identified as two important policy instruments to enhance the role of energy market integration. The findings support the argument for a more competitive cross-province energy transfer policies and calls for more developed energy connectivity and associate institutional arrangements within China. These policy implications may also be extended to the East Asia Summit region where energy market integration is being actively promoted.