Asymmetric adjustment of the dynamic relationship between energy intensity and urbanization in China

This paper provides a comprehensive nonlinear analysis of asymmetric adjustment of the dynamic relationship between energy intensity and urbanization using the time series data of 1978-2010 in China at both the national and the macro regional levels. Two sets of unit root tests are applied first to check whether the variables of energy intensity and urbanization are heterogeneous with and without structural breaks, respectively. Cointegration tests are then applied to determine whether long-term relationships are present when structural breaks are or aren't accounted for. The asymmetric adjustment analyses are finally applied to examine how the variables in time-series respond to the deviations from the equilibrium through an integration of threshold vector error correction model (TVECM), and to examine how they respond to the co-existence of TVECM and the threshold. The findings of the systematic tests and analyses confirm the existence of non-linear causal relationships between the energy intensity and urbanization in China. Energy intensity has an asymmetric adjusting effect to urbanization in the whole country and the Central belt. An asymmetric adjustment running from the energy intensity to urbanization is also identified when structural breaks are accounted for, which occurred in 1988, 1993, 2000 and 2006. Furthermore, the two-regime threshold vector error correction model shows that the adjustment process of the energy intensity toward equilibrium is highly persistent when a threshold is reached. There exists a mean-reverting behavior, indicating that the energy intensity grows faster than the urbanization in China when the threshold is reached.

► Asymmetric adjustment between energy intensity and urbanization is examined. ► Two sets of unit root tests are applied firstly. ► Threshold vector error correction model is finally applied to examine the asymmetric adjustment. ► Energy intensity has an asymmetric adjusting effect to urbanization in China. ► The energy intensity grows faster than the urbanization in China when the threshold is reached.