How Does Regional Integration Drive Energy Efficiency in Vertically Connected Industries?

This study examines the impact of regional integration on energy efficiency through the perspective of vertically linked industries. Our theoretical model incorporates energy inputs into a new economic geography framework, offering robust support for the empirical analysis. Based a unique dataset that combines the industrial enterprise database with the enterprise pollution database, our empirical results reveal that a 1 percent increase in regional integration leads to a 4 percent improvement in energy efficiency in upstream industries and a 5 percent improvement in downstream industries. Further, the heterogeneity analysis shows that regional integration has a stronger impact on high-energy-consuming sectors, developed urban agglomerations and peripheral cities. Mechanism analysis suggests that regional integration enhances energy efficiency by fostering both competition and cooperation among vertically linked industries. Lastly, our policy recommendations include promoting regional integration through targeted policies that encourage industrial competition and collaboration, optimizing urban development strategies to balance energy efficiency gains across regions, and supporting coordinated collaboration within vertical industry chains to drive energy efficiency improvements across sectors.