Spatial effect in the analysis of technological progress and energy efficiency in China — An empirical study based on a spatial econometric model

Improving energy efficiency via new technologies has a high priority in China's agenda for sustainable development. While there is no doubt that technological progress improves energy efficiency, the effects can be overestimated due to spatial spillover. Tests show that there exists significant spatial dependency among Chinese provinces in their energy efficiency, which needs to be factored in when building models. This paper constructs a spatial econometric model to analyze China's energy efficiency in relation to an array of technological progress variables (i.e. foreign direct investment, R&D, human capital, and patents granted) with statistics documented for the year 2008. The analytical results reveal that all four explaining variables contribute to energy efficiency, but coefficients of regression for the spatial error model are more significant than those of OLS. It means that the bias resulting from spatial effects is removed so that the real impact of each variable on energy efficiency can be properly evaluated. Results of the paper are of great significance in modifying the traditional non-spatial perspective in energy efficiency studies in China and shed some light on energy policy making, such as promoting self-innovation rather than depending on foreign direct investment for new technologies.