Unit roots, Co-integration and Granger Causality Tests between FDI and Energy Efficiency in China

This paper employs econometrics techniques to test the causality between energy efficiency and foreign direct investment by using yearly data covering the period 1983-2008. Tests for unit roots, co-integration and Granger-causality based on error-correction model are used in this paper and the results show that there exists a long equilibrium relationship between energy efficiency and foreign direct investment. A unidirectional causality run is found from foreign direct investment to energy efficiency without any feedback effect. This means that energy efficiency depends largely on FDI. So China should attack more foreign capital, which should be guided to invest energy-saving industries. Foreign and domestic firms are also encouraged to engage in energy-saving technological development.