Role of foreign direct investment in decomposing of scale and technique effects on China's energy consumption

Abstract

This study contributes to the literature of energy economics by divulging the nature of scale and technique effects on energy consumption, considering foreign direct investment (FDI) as one of considerable factors of energy demand. The Chinese provincial data over the period of 2000–2018 are used for empirical analysis. In doing so, we have applied the Westerlund and Edgerton cointegration test using cross‐sectional dependence and structural breaks, and bootstrapped quantile regression to decompose scale and technique effects. The empirical results show the presence of cointegrating association among the model parameters, in the presence of cross‐sectional dependence and structural breaks. The quantile regression results indicate that the scale effect exerted by FDI is negative at lower quantiles of energy consumption, and positive at upper quantiles. Moreover, scale and technique effects exerted by FDI are positive and negative, respectively, at lower quantiles of energy consumption, and negative and positive, respectively, at higher quantiles. The results of this study are expected to help in designing the energy policies in China, keeping the quantum of energy consumption at various provinces in mind, and, thereby, ensuring the sustainability in energy consumption.