Will regional economic integration influence carbon dioxide marginal abatement costs? Evidence from Chinese panel data

With frequent trade and technology diffusion, the barriers between regions are gradually weakening, and regions have become more integrated over recent years. Regional economic integration not only stimulates labour mobility, but also achieve scale economy, both of which may also influence carbon dioxide (CO2) marginal abatement costs through affecting energy consumption, CO2 emissions, productivity growth, and technical progress. Nevertheless, to the best of our knowledge, none of the studies has currently concerned the influence of regional economic integration on CO2 marginal abatement costs. To fill this research gap, this study first theoretically clarifies the influence mechanism of regional economic integration on CO2 marginal abatement cost, and then empirically attempts to investigate their relationship in the context of China, with panel data models. To serve this purpose, the provincial CO2 marginal abatement cost and regional economic integration are estimated by parametric directional distance function and price-based approach, respectively. The results show that China's regional economic integration level indeed gradually improved over 2002-2011 except in 2003-04 and 2006-09 due to the spread of Severe Acute Respiratory Syndrome (SARS) and the sub-prime loan crisis. Moreover, evolution of regional economic integration indeed contributes to the increase of CO2 marginal abatement cost at 5% significance level. Using robust tests, it can be found that the results are also reliable and robust to sub-samples.