Robert J.R. Elliott (University of Birmingham, UK) Puyang Sun
(Nankai University, China) Siyang Chen (National University of
Singapore, Singapore) FDI, Energy Intensity and Growth: Evidence
from Chinese Cities
Slide 2
Motivation China now has become the largest recipient of
foreign investment in the developing world with inflows of $95.25
billion in 2010 (World Development Indicators 2010) China currently
accounts for 17.7% of global energy consumption to produce
approximately 8% of global output In 2008 Chinas emissions of
sulphur dioxide (SO 2 ) and carbon dioxide (CO 2 ) were the highest
and second highest in the world at 23.32 million and 2.7 billion
tons respectively In this paper we investigate the relationship
between economic development, FDI and the efficiency of energy
consumption in China
Slide 3
Energy Intensity (ENTI) is a measure of the energy efficiency
of an economy, which is calculated as units of energy per unit of
GDP Industrial Energy Intensity (ENDD) Energy intensity is
negatively correlated with energy efficiency Measurement of Energy
Efficiency
Slide 4
Improving the energy efficiency of Chinese firms is essential
to the sustainable development of the country. Energy efficiency is
not only important from a pollution perspective but also from the
perspective of being able to use less oil, gas and coal in
production (and hence less imports) and hence cheaper products. One
possible channel to enhance energy efficiency is energy- saving
technology transfer from developed to developing countries FDI is
considered a critical channel for technology transfer (Keller
2004)
Slide 5
cities with the highest & lowest aggregate energy
efficiency cities with the highest & lowest industrial energy
efficiency CityENTICityENTICityENDDCityENDD Ningde 0.545
Panzhihua** 3.581 Haikou 0.241 Qitaihe* 6.589 Shanwei 0.567 Baise**
3.677 Zhongshan 0.451 Hegang* 6.606 Shenzhen 0.568 Lvliang* 3.723
Xiamen 0.500 Yuncheng* 6.898 Taizhou 0.595 Linfen* 4.068 Shenzhen
0.564 Xinzhou* 7.103 Xiamen 0.625 Zhongwei** 4.300 Yanan** 0.671
Weinan** 7.174 Zhuhai 0.632 Laiwu 4.385 Putian 0.695 Shuangyashan*
7.316 Shantou 0.658 Wuhai* 5.671 Wenzhou 0.710 Laibin** 7.578
Zhanjiang 0.698 Wuzhong** 5.952 Foshan 0.764 Dazhou** 7.973
Zhangzhou 0.703 Shizuishan** 7.651 Heyuan 0.797 Heihe* 8.150
Wenzhou 0.705 Liupanshui** 8.691 Zhoushan 0.810 Jixi* 10.391
Source: China City Statistical Yearbook, 2006-2009 *Indicates
cities in central region **Indicates cities in western region Top
10 and Bottom 10 Cities of Energy Efficiency in China, 2005-2008
Nearly all the cities with highest level of energy efficiency are
in eastern coastal provinces The majority of cities at the bottom
belong to the central or western areas
Slide 6
Cities with the highest FDI inflow in actual use Cities with
the highest agglomeration in finance sector Figure 1 The Geographic
Distribution of Agglomeration and FDI (2003- 2008) Literature FDI
& Energy Consumption AuthorsEvidenceLimitation Eskeland &
Harrison (2003) Foreign ownership is associated with more energy-
efficient production in an analysis of manufacturing plants in Cote
dIvoire, Mexico and Venezuela. These studies are based on cross-
country panel data in which heterogeneity may result in
misspecification Cole et al. (2011) Multinational firms are less
pollution intensive than domestic firms since the latter may
utilize more advanced technologies, cleaner production methods, and
possess more developed environmental management systems
Chichilnisky (1994) Motta & Thisse (1994) Pollution Havens
Hypothesis: FDI may be attracted to economies by less stringent
environment regulations Hbler & Keller (2009) Aggregate FDI
inflows do not help to reduce energy intensity in a developing
country context
Slide 7
Contribution We employ an extensive city-level data set that
covers 206 of Chinas largest cities for the period 2005-2008 to
investigate more closely the relationship between economic growth,
FDI and the efficiency of energy consumption in China We believe
that a city-level study is a better able to represent regional
differences compared with the more usual province level studies We
examine the relationship between the output of domestically- owned,
foreign-owned and by Hong Kong, Taiwan and Macao (HTM) owned firms
to better understand the relationship between FDI and local energy
intensity
Slide 8
Mechanism Total energy consumption can be decomposed into three
channels: (Hbler and Keller, 2009) Scale effect is left out when
energy intensity is used (Keller, 2009) One of indirect effects
from FDI to energy savings in our estimation The main dimension in
our study
Slide 9
Technique Effects of FDI on Energy Savings Direct Effects :
Technology Transfer Demonstration Effects Labor Turnover Effects
Vertical Linkage Effects Indirect Effects : Income-Induced
Technique Effects Technique effects of FDI on Energy Savings
Slide 10
Core question: Does FDI envourage energy saving (i.e. reduce
energy intensity) in China through the technique effect?
Sub-questions: 1. How do technique effects of FDI differ across
Chinese cities? 2. If the effect of FDI differs by region, what are
the mechanisms that drive these differences ?
Slide 11
Regional facts of Energy Intensity Lighter dots: Cities with
lower energy intensity (i.e., higher energy efficiency)
Slide 12
Regional distribution of FDI Darker dots: Cities with higher
FDI inflows
Slide 13
Regional facts of income Darker dots: Cities with higher income
level
Slide 14
These maps suggest: Cities with the highest income are also
those that receive the greatest volume of FDI, and Cities with the
highest income have higher energy efficiency (lower value of energy
Intensity) We now identify if these relationships hold
econometrically and whether these relationships are consistent
across Chinese cities and which if not which mechanisms drive any
regional differences
Slide 15
Estimation equation& Empirical results VariableDefinition
of VariableFunction of variable Expected sign Explained Variables
ENTI Aggregate energy intensity ENDD Industrial energy intensity
Explaining Variables YPC 2 quadratic term of income per capita to
capture the inverted-U shaped relationship between YPC and EI - FDI
Foreign direct investment normalized by GDP (%) to capture the
energy-saving technology transfer of FDI - GIPf Industrial product
normalized by GDP for foreign countries invested firms to capture
the energy-saving technology transfer of foreign investment
alternatively - GIPh Industrial product of the firms from HTM,
normalized by GDP to compare the effects of foreign firms and firms
from HTM +/- GIPd Gross industrial product normalized by GDP to
compare the effects of foreign and domestic investment +
Slide 16
Variable DefinitionSource EIEnergy Intensity, energy
consumption per unit of GDP (ton per 10,000 yuan) Government Report
(2006-2010) by Chinese Provincial Bureau of Statistics YPCIncome
per capita (2005 price). China City Statistical Yearbook (2010)
FDIShare of foreign direct investment in GDP (100 yuan per yuan)
(%) GIP d,h,f Industrial product normalized by GDP for
domestic/HTM/foreign firms (100 yuan per yuan) Data (From 2005 to
2008, across 206 Chinese municipal-cities )
YPC & EI (national regression) Column 2, 4 : Inverted-U
relationship between income per capita and energy intensity is
confirmed at the national level Turning point of the inverted-U
curve is estimated at between RMB 1,651 and RMB 2,697 for ENTI, and
RMB 1,840 and RMB 2,259 for ENDD The majority of Chinese cities
belong to the downward sloping part of the inverted-U curve, which
means the rising income per capita contributes to energy savings in
these cities A significant income-induced technique effect is
expected to be found in the cities with higher income levels
Slide 19
Income level appreciation of better environment reinforcement
in regulation income-induced effect We propose that there is an
inverted-U-shaped relationship between income per capita and energy
intensity. The nonlinear relationship is expected to exist at the
national level At the regional level, we pay more attention to the
linear relationship between income and energy intensity, which
reflects the income-induced technique effect The income-induced
effect intensifies with the income level and is expected to be
prominent in the region with higher income Indirect technique
effects:
Slide 20
FDI & EI (national regression) Column 3, 4 inflows of FDI
facilitate energy savings in China A 1% of FDI inflows will
generate a 0.02%-0.027% reduction in aggregate energy intensity A
1% of FDI inflows will generate a around 0.03% reduction in
industrial energy intensity
Slide 21
Columns 5, 6 Production of domestic firms can lead to a
reduction of energy efficiency in China Production of firms from
HTM is helpful to enhance energy efficiency in China It is further
confirmed that foreign firms help to enhance energy efficiency in
China Industrial Production(GIPd, GIPf,GIPh) & EI (national
regression)
YPC & EI (regional results) EAST (Group A) A significant
negative linear relationship is confirmed The income-induced
technique effect is significant in the East China: in this area
energy efficiency will ascend in accordance with income per capita
CENTER (Group B) For both ENTI and ENDD, an inverted-U relationship
between YPC and EI is confirmed with negative and positive For
ENTI, there is a significantly positive linear relationship between
income and energy intensity in this region, while for ENDD, this
relationship becomes negative The income-induced technique effect
is ONLY significant for aggregate energy intensity in Central
China. WEST (Group C) For ENTI, NO significant relationship between
income and energy intensity is found ( linear or nonlinear) For
ENDD, a negative linear relationship exists Similarly, the
income-induced technique effect is also ONLY significant for
aggregate energy intensity in Central China
Slide 25
FDI & EI (regional results) A direct technique effect from
FDI is insignificant for the east and exhibits a magnified in the
central and western regions in terms of both significance and
absolute value The value of is slightly larger in the central
rather than the western areas of China The elasticity of ENTI on
foreign investment is higher than that estimated for ENDD In
western cities, there is highly possible to exist a relatively
higher technical difference between firm with FDI and domestic
firms, compared with lower difference gap in eastern cities. This
provide a reasonable reason to explain why the technical effects in
western cities are more significant than in eastern cities.
Slide 26
Demonstration effect: We denote demonstration effects in East,
Center and West China by D1, D2 respectively so that: EastCenter
& West Technological gap between domestic and foreign firms
smalllarge Demonstration effect Less SignificantMore Significant
Mathematical expression D1 < D2 Direct Technique Effect of FDI -
regional analysis the gaps between foreign energy- saving
technology and current practice in local business Demonstration
effects
Slide 27
Vertical linkage effect We denote the vertical linkage effect
in the east, center and west of China by V1, V2 respectively so
that we have: EastCenter & West export and import-oriented
HighLow Foreign ownership Integration of business chain Vertical
spilloverLess SignificantMore significant Mathematical expression
V1
