IDS WP No.1: Government-Led Urbanization and Natural Gas Demand in China

Abstract: The Chinese government is actively promoting urbanization to stimulate its economic growth while facing increasingly prominent environmental concerns. The main objective of this research is to assess whether the Chinese government is making efforts to promote cleaner energy demand while pushing for urbanization. This study employs system GMM models to empirically investigate the causal relationship between urbanization and natural gas demand by using a sample of 30 provinces in China over the period 2005–2018. The estimates of the preferred specifications show that government-led urbanization has a positive impact on natural gas demand conditional on total energy use. By attaching natural gas facilities to new structures through the use of administrative power, the government induces natural gas demand while promoting urbanization. Robustness checks indicate that adding more potentially influential factors will not qualitatively change the results from the baseline. A constrained two-step static panel data estimation is used to estimate the depreciation rates of natural gas and of all fuel appliances, suggesting that the promotion of natural gas demand provides a relatively economical way to balance the trade-off between economic growth and the reduction of emissions. The empirical results also show that the dynamic model outperforms its static counterpart in predictions. Based on the results, policy recommendations are made towards the goals of the Fourteenth Five-Year Plan for the National Economic and Social Development of China.

Key words: natural gas; urbanization; dynamic panel model; China

JEL classification: Q41, Q47, Q48, R11, R12

Suggested Citation: Zhengyu Cai, Chin-Hsien Yu, and Chunhui Zhu (2021). Government-Led Urbanization and Natural Gas Demand in China. IDS Working Paper No. 1. Chengdu: Southwestern University of Finance and Economics. Available at: https://fzyjy.swufe.edu.cn/info/1133/2358.htm.