Carbon dioxide emissions and interregional economic convergence in China

This paper examines the effect of carbon dioxide (CO2) emissions on economic convergence among Chinese provinces from 1998 to 2012 using the framework of environmental total factor productivity (ETFP). We modify the standard β-convergence model to incorporate undesirable outputs such as CO2 emissions. The bootstrap method is subsequently applied to estimate the values of ETFP, and the system generalized method of moments (GMM) estimator is employed to test for convergence. The results indicate that there is imperfect interregional economic convergence in China, which is supported by gross domestic product (GDP) and CO2 emissions. However, the convergence process is inefficient due to the 'catching up' convergence trend of per capita CO2 emissions in China. This paper also finds that the variation in the capital stock and labour does not support the hypothesis that all of the provinces can converge to a steady state.