Exploring the relationship between urbanization and energy consumption in China using ARDL (autoregressive distributed lag) and FDM (factor decomposition model)

The paper develops a function of energy consumption, population growth, economic growth and urbanization process, and provides fresh empirical evidences for urbanization and energy consumption for China over the period 1978-2008 through the use of ARDL testing approach and factor decomposition model. The results of the bounds test show that there is a stable long run relationship amongst total energy consumption, population, GDP (Gross domestic product) and urbanization level when total energy consumption is the dependent variable in China. The results of the causality test with ECM (error correction model) specification, the short run and long run dynamics of the interested variables are tested, indicating that there exists only a unidirectional Granger causality running from urbanization to total energy consumption both in the long run and in the short run. At present, the contribution share which urbanization drags the energy consumption is smaller than that in the past, and the intensity holds a downward trend. Therefore, together with enhancing energy efficiency, accelerating the urbanization process that can cut reliance on resource and energy dependent industries is a fundamental strategy to solve the sustainable development dilemma between energy consumption and urbanization.