Energy distribution and economic growth: An empirical test for China

a r t i c l e i n f o In this paper we consider whether economic growth in China could be constrained by the physical development of the energy distribution network. Specifically, we structurally test the network theory of electricity distribution of Dalgaard and Strulik (2011) using city level data for China. In their paper they argue that the relationship between the size of the economy, measured by capital per capita, and electricity consumption per capita is governed by a simple power law with capital having an exponent bounded between ½ and ¾ depending on the efficiency of the network. We use data for 224 cities in China between 2002 and 2007 to observe whether structural estimates match those of Dalgaard and Strulik (2011) for 50 US states where they find the exponent in the power law connecting capital with electricity to be 2/3. Our results provide an estimate of the power law component to a little higher than the 2/3 found for the US which provides broad support for the model. When we look at different time periods we observe what appears to be a fall in the efficiency of the energy distribution network towards the end of our period. China's rapid economic growth in the last twenty years has been matched by an equally dramatic growth in the production and consumption of energy. A major concern for Chinese policymakers is whether the current rate of growth will be constrained in the future by physical constraints imposed by a shortage of energy distribution infrastructure. Central to this question is whether China's electricity distribution network will be able to continue to provide the electricity required by China's power hungry consumers and energy intensive manufacturing sector. To shed some light on the relationship between energy distribution and economic growth we revisit a novel network theory of electricity distribution by Dalgaard and Strulik (2011). The model posits a supply relationship between electricity consumption per capita and the size of the economy measured by capital per capita where the economy is viewed as a transportation network for electricity. The logic is straightforward. Energy is needed to run, maintain and create capital. Without an electricity supply, any investment in machinery at a particular place or time will not lead to economic growth. Early attempts to model present how structural characteristics such as population growth and technological change affect the ability of an …