A Quantitative Analysis On China's Environment And Economic Growth

The increasingly fast depletion of energy and natural resources has become prominent in the social and economic development of the humankind. The everlasting environment pollution and ecological destruction means that the environmental problems that we face have extended from local areas into the entire globe and from the current generation into the next generation. The frequent abnormal climate changes keep warning us of the aggravating ecological deterioration. Against such a background, the relationship between environment quality and economic growth, an issue of time allocation about environment, has become one of the central themes in the studies of sustainable development, which requires both empirical and theoretical analyses on the possibility and path of evolution to the balanced development between environment and economy, on the basis of which some tentative suggestions can be offered on the decision-making and implementation of environment policies.Beginning with the current Chinese economy and environment quality, this dissertation analyses quantitatively the interaction between environment deterioration and economic growth within the fundamental framework of macroeconomics with a view to discover the internal mechanism of environmental evolution. A theoretical model on environment and economic growth is first built, and then an empirical analysis with Chinese data is conducted from the perspective of the national and local differences. Meanwhile, the mechanism of environment changes is studied and finally the interaction between economic growth and environment quality (including pollution emission and energy consumption) is discussed.The main contents and conclusions are as follows:The first chapter introduces the purpose and scope of the study. The second chapter is a literature review of theoretical and empirical models on environment and economic growth, which provides a solid theoretical basis for this study.The third chapter builds a theoretical model on the basis of the neoclassical growth model---the Solow Model. The new Environmental Solow Model incorporates environment as a capital input and utilizes the dynamic equilibrium analyses in mathematical economics. The results of study demonstrate that under certain conditions the path towards the balanced development between environment quality and economic growth can be found. Compared with ecological and environmental quality, natural resources and energy are more important factors of production, thus the price system, which will produce the equilibrium between resource utilization and economic growth, is likely to have more effects within a relatively short period. However, environment pollution is a byproduct of production, which cannot be completely eliminated at the current technological level. Consequently, the negative externalities of environment pollution can not be internalized through the market mechanism and the restraints on economic development have relative hysteresis. Moreover, because we have very limited knowledge about the law of nature, we can not determine exactly the existence of ecological threshold and the consequences on the humankind and the nature after reaching the threshold. Therefore, we need external forces to intervene in production so as to reach the path towards the balanced development of environment improvement and economic growth.An empirical research is elaborated on from chapter 4 to chapter 7. Chapter 4 analyses the general relationship between environment quality and economic growth in China. With the tools of time series analyses, the curve shape of the relationship between environment and income is tested so as to identify the average income levels of the turning points of environmental quality. The long-term equilibrium and short-term fluctuation between environment quality and economic growth is studied from the perspective of time series. The simplified model and the error correction model show that the Environment Kuznets Curve Hypothesis does not hold. Through the VAR and SVAR model and the simulated structure and variance analysis of the generalized impulse response function, it is found that the positive impact of average income will result in the increase in energy consumption and pollution emission, but this impact has hysteresis; external forces to reduce pollution such as environmental regulations tend to increase average GDP in the short run, compulsory measures to reduce energy consumption will have evident negative effects on economic growth; the contribution of energy consumption to the growth of average GDP is over 40%, while solid waste, waste water, and waste gas contribute very little to the variance projection of average GDP. The results show that energy has an increasingly evident bottleneck effect on economic growth. However, the restraints of environment pollution on economic growth have not fully been embodied. Such feedbacks have a longer time lag than that of energy consumption.The fifth chapter analyses the mechanism of environment quality changes, which is based on the decomposition analysis of environment pollution factors. The LMDI approach to decomposition analysis is used to decompose the changes of pollutant emission into the impacts of economic scale, population growth, industrial structure and emission intensity, and then a theoretical and empirical research tests the effects of all driving forces behind economic growth on the changes of environment quality. The results of the empirical research show that in the current stage of economic development the expansion of economic scale and the increase of population will increase the production and emission of solid waste, waste water and waste gas while the impact of industrial structure on the changes of pollutant emission is unstable because in the short run the change in industrial structure can not turn around the trend of industrial pollutant emission and technological progress has negative impacts on pollutant emission, which is an important factor in neutralizing the effect of scale and population and is the main reason for the reduction of pollutant emission. In this chapter the quantile regression is also used to test the impacts of other elements on pollutant emission.The sixth chapter focuses on the regional differences in the relationship between environment and economic growth. A panel data model is built on the basis of relevant provincial data and the relationship between environment pollution and economic growth is tested on the data of the east, middle and west regions. The conclusion shows that the relationship between some pollutants and economic growth shows an inverted U shape, which is in conformity with the EKC hypothesis. However, from the perspective of all turning points, the production and emission of pollutants in most provinces are still on the rise and moreover the relationship between pollution and average income is different in different regions. Generally speaking, industrial pollutant emission still increases with the growth of average income level, but in some regions with relatively high average income the emission of some domestic pollutants has begun to decline while at the same time these regions are confronted with the serious problem of inadequate garbage landfills.The seventh chapter studies the interaction between environment pollution, energy consumption and economic growth. A simultaneous system of equations including production function, pollution function, and energy function is built on the basis of Chinese provincial data with a view to examine the internal feedback mechanism between environment and economic growth and to test the impacts of exogenous variables in the economic system on equilibrium production, pollutant emission and energy consumption. The results of estimation demonstrate that traditional factors of production such as physical capital and labor are the major driving force of economic growth in current stage and Chinese economic development is still driven by investment; the turning point of pollution emission and energy consumption has yet to be reached; in current stage pollution emission is an inevitable byproduct of production and the fast economic growth will inevitably be concomitant with the increase in industrial pollution; energy consumption as an important input in the production process will promote a drastic increase in production.The eighth chapter summarizes the main conclusions and innovative ideas of the dissertation, on the basis of which some tentative suggestions on the coordinated development of environment and economic growth are proposed.The main innovative ideas of this dissertation are as follows:1. The traditional neoclassical growth model excludes the impacts of environment on production. With the increasing prominence of environment problems, environmental capital, as a factor of production similar to human capital and independent from physical capital, has an increasingly undeniable impact on economic growth. In addition, most theoretical models on environment and economic growth are based on utility function which utilizes optimization theories. However, very few models examine the relationship between environment and economic growth from the perspective of production function and the impact of other exogenous variables on both elements. Therefore, on the basis of Solow growth model, this dissertation builds an Environment Solow Model which includes environment capital as a factor of production (including resource stock and ecological and environment quality) and conducts qualitative analysis with dynamic equilibrium approach.2. The LMDI decomposition approach is used to decompose the changes of pollutant emissions into scale effect, population effect, structure effect and technological effect. Most theoretical articles prove the existence of the EKC from the three perspectives of scale, structure and technology, but very few empirical researches really decompose the effect of income changes on environment. This dissertation fills this gap and uses LMDI decomposition approach to decompose the changes of pollutant emissions into scale effect, population effect, structure effect and technological effect. The result shows that the pollution-income relationship is the mixed result of the four effects, which provides more direct empirical support for relevant theoretical models.3. On the basis of endogenous growth model and the EKC hypothesis, a 3E model (Economy, Environment and Energy) including production function, pollution function and energy function is built to analyze the interaction and feedback between economy, environment and energy and to analyze the impact of all economic factors on the Economy-Resource-Environment system.4. This dissertation separates industrial and domestic wastes, conducts empirical researches to test the EKC of the two kinds of wastes, and chooses different indexes to measure elements such as economic growth. Enterprises produce and discharge most industrial pollutants while residents produce most domestic wastes, therefore different estimation function need to be built in order to examine the impacts of different economic elements. This dissertation discriminates these two types of wastes and measures economic growth with average GDP and resident consumption level respectively in two functions. The other factors are selected according to economic theories and current realities. The economic factors that determine the two types of wastes are clarified and valuable policy suggestions for the two types of pollutants are proposed.5. This dissertation adopts time series data and panel data, uses modern econometric tools, begins with different models and conducts a systematic and comprehensive analysis on the relationship between two environment problems including energy consumption and pollutant emission and economic growthBuilding on the quantitative research on the relationship between environment quality and economic growth, this dissertation proposes some policy suggestions to coordinate the relationship between environment quality and economic growth with a view to facilitate the achievement of the sustainable development of resource and environment.