Impact of interaction between financial development, urbanization, and energy consumption in China

Abstract

Given the urgent need for China to reduce the growth rate of energy consumption (EC), the relationship between financial development (FD), urbanization (UR), and EC is directly related to the effectiveness of China's current ecological civilization construction. This study analyzes the internal relationship between the three from the perspectives of financial scale (FD1), financial structure (FD2), and financial efficiency (FD3) through the generalized method of moments (GMM) estimation, impulse response, and variance decomposition of the panel vector autoregression (PVAR) model. The following conclusions are derived. First, the results of the PVAR model show that when FD is measured with FD1, FD2, and FD3, each variable has path dependence, and the lag-phase-one term of each variable has a strengthening effect on itself. Second, based on the pulse response diagram, a positive response occurs after FD1 and FD2 give a standardized shock to EC, but a negative response occurs when FD is characterized by FD3. When FD is measured with FD1, a positive response occurs after UR gives a normalized shock to EC. When FD is measured with FD2 and FD3, there is a weak negative response. Third, the results of the variance decomposition show that the changes of FD, UR, and EC rely more on their own inertia. Although the impact of FD and UR on EC has an increasing trend, the impact is small. Therefore, local governments should rationally control the financial scale, optimize the financial structure, improve the financial efficiency, and strengthen the propaganda of energy conservation.

The Symmetric Effect of Financial Development, Human Capital and Urbanization on Ecological Footprint: Insights from BRICST Economies

“…Several closely interrelated mechanisms explain the negative effect of the interaction term between FD and UP (FD*UP) on the EF in BRICST economies. First, in interaction with the growing urbanization process, FD facilitated a more efficient allocation of resources and investments in environmentally friendly technologies and infrastructure construction [96]. In many cases, the UP creates demand for cleaner energy sources, more efficient public transport, and eco-friendly urban planning, making financial institutions more inclined to invest their funds in projects that allow them to reduce the EF.…”