Does energy-industry investment drive economic performance in regional China: Implications for sustainable development

Abstract The economic giant China, enjoying miraculously high economic performance since the 1980s, is currently facing an economic performance slowdown, along with environmental sustainability challenges. Energy-industry investments might serve as a potential driver of economic performance, indirectly inducing environmental sustainability through investments in the energy-industry transition from old technology to a renewable one. This research provides an empirical assessment of the causal bond between energy-industry investment and economic performance across the regional development levels, employing a dynamic longitudinal data modeling on China’s 27 provincial and municipality units from 1997 through 2017. It developed an economic performance model to incorporate energy-industry investment as an aggregate production growth input. The core empirical findings are as follows. Firstly, the energy-industry investment and economic performance induced a positive and statistically significant mutual influence, manifested from their parameter estimates. Secondly, a bilateral causal bond is unveiled between energy-industry investment and economic performance based on the Dumitrescu-Hurlin technique, confirming the feedback hypothesis of a causal bond between the two variables. The results are consistent across the under-analysis panels in terms of the nature of the influence; however, the induced degrees of their influence significantly differed across the regional development levels. The intensity of the direct influence of energy-industry investment (0.049) on economic performance lags behind the feedback influence of economic performance (1.069) on energy-industry investment. Additionally, considerable heterogeneities are detected in influence intensities across the regional panels. Eastern China (region of high development) displayed the most substantial direct (0.058) and feedback influence (1.193), while western China manifested the least substantial intensity of direct (0.030) and feedback influence (0.836). After that, the central China (region of medium development) demonstrated a medium intensity of direct (0.037) and feedback influence (0.996). Finally, among other regressors, human capital, physical capital, inflation rate, and trade presented a positive and significant influence on economic performance. In contrast, the foreign direct investment significantly influenced the economic performance only in the eastern China. The empirical findings implied that energy-industry investment might serve as a vital driver of economic performance, with the most significant role in the highly developed regions and the least significant in the low developed regions, given the important explanatory variables. Based on empirical findings, policies are suggested.