Journal of Cleaner Production 278 (2021) 123773

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Journal of Cleaner Production

journal homepage: www.elsevier.com/locate/jclepro

Economic growth and carbon emissions: Estimation of a panel

threshold model for the transition process in China
Zhiguang Song
Graduate School of Global Environmental Studies, Sophia University, Japan

a r t i c l e i n f o a b s t r a c t

Article history: In recent years, the correlation between economic growth and environmental pollution has become
Received 30 December 2019 noticeably contentious in China, which is experiencing the process of transitions in various social and
Received in revised form economic sectors, for example, slowing economic growth, reformations to industrial and capital struc-
9 August 2020
ture, ongoing urbanization, aggravated aging population and a series of environmental challenges, which
Accepted 14 August 2020
are also known as a “New Normal” era in the 2010s. In the present study, a test is conducted on the non-
Available online 23 August 2020
linear relationship between economy and environment, which are represented as real GDP (Gross Do-
^ as de
Handling Editor: Cecilia Maria Villas Bo mestic Product) per capita and carbon emissions per capita, respectively. Based on the data of a non-
Almeida dynamic panel that covers 30 Chinese provinces from 2001 to 2016, the threshold regression model is
applied with fixed effects to understand how the mentioned transitions impact on such relationship as
Keywords: structural breaks, in particular since its “New Normal” era. In brief, according to the estimation results,
Carbon emissions economic growth with a sustained high level of investment in technology (e.g., Northwest and South-
China west China) and environmental protection activities are of empirical significance to cutting down on
Energy structure
carbon emissions in China. Moreover, given the emissions reduction during China’s economic growth,
New normal
“Economically significant provinces” concentrated in East China (e.g., Beijing, Tianjin, Shanghai, Jiangsu
Non-linear relationship
Threshold model and Shandong in the present study) ought to develop and transfer their energy structure in a more
renewable manner. In the meantime, “Energy abundant provinces” located in inland China are supposed
to develop clean mining technology and strengthen their construction of energy delivery channel, which
complies with an efficient market mechanism for cross-regional transaction in renewable energy from
the perspective of sustainability.
© 2020 Elsevier Ltd. All rights reserved.

1. Introduction efficiency and excess capacity in state-owned enterprises,

In modern age, China has launched the world’s largest poverty
elimination and modernization activities, especially after the
introduction of the reform and opening-up policy since the 1980s
and WTO accession in 2001. Such achievements have benefited
immensely from its huge domestic market and low labor cost.
Nevertheless, as a turning point, China’s economic growth rate
suffered a slowdown after a long period of double-digit growth in
the first decade of the 21st century after the global economic crisis
(2007e2008). As revealed by the statistics of the World Bank,
China’s GDP growth declined from 14.23% in 2007 to 6.74% in 2016
(Fig. 1), along with internal ongoing transitions in various social and
economic sectors. For instance, the bottleneck of an economic
development mode largely driven by trade and investment, low
E-mail address: genv-co@sophia.ac.jp.
manufacturing upgrade, increased urbanization and intensified
aging population, and various emerging environmental challenges
are generally characterized as “New Normal” era proposed by
President Xi Jinping in 2014.
More specifically, with regard to the industrial and capital
structure as shown in Fig. 2, the ratio of output in manufacturing
industries to the total has shown an overall declining trend, espe-
cially since 2011, which is primarily attributed to the industrial
transition taking place in China from labor-intensive to technology
and capital intensive, as well as the development of the service
sector, as suggested by the ratio that has exceeded 50% since 2015
(World Bank). In the meantime, as private sectors have been in
continuous development, a series of market-oriented reforms, and
an exodus of foreign capital since the global financial crisis, the
ratio of foreign capital to the total has exhibited an overall down-
ward since 2007, which evidences the transitions to some extent in
development mode. During this period, as fueled by its long-term

https://doi.org/10.1016/j.jclepro.2020.123773
0959-6526/© 2020 Elsevier Ltd. All rights reserved.
2 Z. Song / Journal of Cleaner Production 278 (2021) 123773

Fig. 1. China’s GDP growth (annual %) over years based on constant local currency. Sourced from World Bank national accounts data, and OECD National Accounts data files.

Fig. 2. Output of manufacture industry (% of all) at left and foreign capital (% of all) at right over years in China. Sourced from China Statistical Yearbook in 2001e2016.

process of urbanization, China has also been in a steady shift to-
wards an aging society. As suggested by the World Population
Prospects (United Nations), the ratio of the population aged 65 and
above to the total in China is on the increase continuously and has
initially reached above 10% since 2016.
Meanwhile, under the context of such global trends as the “4.0
Industrial Revolution” and “Green Industry Innovation”, the model
of sustainable development adopted by China as the world’s largest
industrializing country and greenhouse gas (GHG) emitter with
environmental factors considered has attracted increasing atten-
tion. For instance, as revealed by the China Environmental Statistics
Yearbook and China Science and Technology Statistical Yearbook,
investment in pollution control per capita (Chinese Yuan Renminbi/
RMB) has increased significantly from RMB 107.66 in 2001 to RMB
772.04 in 2016. During the same period, research and development
(R&D) investment per capita (RMB) has even been on the rise from
RMB 115.59 to RMB 1180.44 for 16 years in a row.
As for policy and legal supports, the economic growth mode
adopted by China during its high-speed development period has
been characterized by “High investment, high consumption, high
emissions, as well as low efficiency” mentioned in the report of the
11th Five-Year Plan (2006e2010). In addition, it has also been in the
progressive shift into a resource-saving and environmental-
friendly growth model, which is especially boosted by several sig-
nificant legislation and guidelines, including the “Energy Devel-
opment Strategic Action Plan” released in 2014, aiming at down-
regulating China’s high energy intensity, as well as the “Intended
Nationally Determined Contribution (INDC)” released in 2015,
which involves its commitment to climate change mitigation and
adaptation for the post-2020 period in the framework of the Paris
agreement. All as mentioned here is accompanied with step-by-
step instructions and goals, lower primary energy consumption,
enhanced energy efficiency and tightened pollution control
(Table 1).
Based on the aforementioned circumstance, as the correlation
between economic growth and environmental pollution with each
variation becomes an increasingly contentious issue during the
transitional period in China, an empirical analysis is conducted in
this study of the relationship between economic growth (real GDP
per capita) and environment (carbon emissions per capita) in
China. Further with this, the threshold regression model with fixed
effects as proposed by Hansen (1999) will be applied to carry out an
investigation into how the social and economic transitions taking
place in China will impact on this relationship as exogenous
structural breaks in different threshold regimes, which has attrac-
ted little attention for analysis previously, particularly since the
“New Normal” era based on a non-dynamic panel data covering 30
provinces in China between 2001 and 2016 (Fig. 3). Additionally,
the spatial-temporal distribution based on significant threshold
regimes will also be specifically determined, so as to give some
practical suggestions on how China could achieve sustainable
development based with consideration given to the environmental
 Z. Song / Journal of Cleaner Production 278 (2021) 123773
Table 1
Key indicators of China’s climate & energy policies.
Source
2020 Target
INDC*
13th Five-Year Plan (2016e2020)
INDC: Intended Nationally Determined Contribution; CO2 intensity ¼ Total CO2 emissions per unit of GDP; Energy intensity ¼ Total primary energy
consumption per unit of GDP.
Fig. 3. Research subject and framework in this study.
impacts caused during the transitional period of social and eco-
nomic development.
This study is structured as follows. In the first section, an
introduction is made of the research background to various tran-
sitions happening with the social and economic development in
China and the relevant environmental problems will be indicated.
In the second section, a literature review is conducted regarding the
empirical method of the threshold regression model applied in
various fields. In the third section, the conceptual framework,
model construction and simulation process of the model are
detailed. In the fourth section, the relevant data and variables will
be described with the corresponding rationality test of applied
data. In the fifth section, both the threshold effect test and
threshold model estimates are conducted. In the sixth section,
further verification is conducted and the spatial-temporal distri-
bution derived from statistically significant threshold regimes is
observed and summarized on the basis of threshold effect test and
model estimates. In the final section, the conclusions and impli-
cations are indicated.
2. Literature reviews
Since the 1990s, the classic environmental economics in
empirical studies have developed, as represented by the Environ-
mental Kuznets Curve (EKC) theory that lays emphasis on the
correlation between economy, energy and environmental pollu-
tion. However, a perspective rising huge dispute in ordinary
empirical studies is that those relationships probably undergo
structural breaks or switching regimes that may exhibit a non-
linear implication, sudden or abrupt changes. To cope with this
perspective, the threshold regression model with fixed effects is
constructed in this study to determine those unknown structural
breaks and asymmetric behaviors of the variables in a range of
regimes.
Initially, Hansen (1999) proposed the threshold regression for
the non-dynamic panel data with individual specific fixed effects to
3
Key Indicators
Reduce carbon dioxide (CO2) intensity* by 40e45% compared to 2005 by 2020.
Increase non-fossil energy consumption (% of total) to 15% by 2020.
Reduce CO2 intensity by 60e65% compared to 2005 by 2030.
Reduced energy intensity* by 33.8% compared to 2005 by 2015.
Increase non-fossil energy consumption (% of total) to 20% by 2030.
Reduced CO2 intensity by 18% compared to 2015 by 2020.
Reduced energy intensity by 15% compared to 2015 by 2020.
Increase non-fossil energy consumption (% of total) to 15% compared to 2015 by 2020.
investigate whether financial constraints can have an impact on the
investment practices of enterprises based on a panel data on 565 US
companies from 1973 to 1987. He found a compelling evidence of a
double threshold effect that can categorize the firms into three
regimes depending on their debt to asset ratios. From that point on,
the threshold method has been widely applied in economics and
other relevant fields. For example, by introducing the degree of
tourism specialization as a threshold variable, Chang et al. (2009)
explored whether tourism specialization plays a significant role in
economic development across different regions around the world
over the period 1991e2008. According to the empirical results
obtained from threshold estimation, there are two endogenous cut-
off points (threshold effects), which are 14.97% and 17.50%,
respectively. Besides, it was found out that tourism growth does not
necessarily translate into economic growth. Craigwell et al. (2012)
resolved the issue of threshold effects between public debt and
economic growth in the Caribbean region. Specifically, one of the
major findings demonstrates that the rise in the debt-to-GDP ratio
is related to a faster pace of economic growth when debt to GDP
ratio is reduced below 30%. As debt exceeds 30%, however, the ef-
fect on economic growth is reduced rapidly and the growth impacts
switch from positive to negative when the debt level reaches
55e56% of GDP. In addition, Mehrara et al. (2015) ascertained the
non-linear effects of fiscal and monetary policies on inflation from
1990 to 2013 in Iran, with the estimated liquidity growth of 6.37% as
the threshold variable. As revealed by the estimated results, infla-
tion expectations and the lagged liquidity growth could be treated
as the critical determinants of inflation in low regime (
6.37%) of
liquidity growth. In high regime (>6.37%), however, the effects of
such variables as liquidity growth, development and concurrent
expenditure, exchange rate, budget deficit and inflationary expec-
tations appeared to be more robust than in low regime. Applying
the panel threshold regression model for the period of 2006e2015,
Tho and Nguyen (2018) conducted an in-depth study on the cor-
relation between foreign direct investment (FDI) and income
inequality in Vietnam. As indicated by the results, FDI could cause
4 Z. Song / Journal of Cleaner Production 278 (2021) 123773
an indirect impact on income inequality through its impact on GDP
level as the threshold variable, with two threshold values of 4.38%
and 11.96%, respectively.
In particular, increasing attentions have addressed the inflation-
growth nexus in various countries, by the model simulation based
on the threshold effect. In order to determine whether the rela-
tionship between inflation and economic growth is non-linear by
applying the data on ASEAN-5 countries over the period
1980e2011, Thanh (2015) discovered a statistically significant
negative relationship between inflation and growth for the infla-
tion rates exceeding the threshold level of 7.84%, above which
inflation starts to hinder economic growth in the ASEAN-5 coun-
tries. Similarly, Aydin et al. (2016) explored the effect of inflation on
economic growth for five Turkish republics. As reported, there was
indeed a non-linear relationship between the variables when the
inflation rate was regarded as the threshold variable. When infla-
tion rate rises above the calculated threshold value (>7.97%), eco-
nomic growth will be inhibited. However, a positive effect will play
out when it falls below the value (
7.97%). Using the annual dataset
during 1990 and 2015, Jiranyakul (2017) carried out an analysis of
the relationship between inflation and economic growth in
Thailand. It is suggested that inflation will significantly slow down
economic growth when the threshold level of inflation rate above
3%, which means the inflation rate greater than this threshold level
is adverse to the economic growth of a country. In the meantime,
Ndoricimpa, 2017 applied a dynamic panel threshold regression to
examine nonlinearities in the inflation-growth nexus in Africa,
which confirmed the existence of nonlinearities. An inflation
threshold of 6.7% is estimated for the whole sample, 9% for the sub-
sample of low-income countries and 6.5% for middle-income
countries, from which it can be found out that low inflation is
conducive to economic growth for the sub-sample of middle-
income countries. Moreover, the inflation above the threshold
could affect economic growth negatively for all the cases
considered.
As for the threshold regression model focused on China, Chen
(2012) applied the threshold panel model to predict the effective-
ness of the exchange rate to imports and exports. It was concluded
that China’s trade flows are inconsistent with the Marshall-Lerner
(ML) condition when the appreciation of the RMB exchange rate
is less than 7.8%. In comparison, the ML condition strongly holds
when the rate is higher than 7.8%, indicating that the appreciation
of the RMB exchange rate would cause international revenue to
decline for China. In addition, based on the panel data from 2005 to
2016 that covers 30 provinces in China, Liu and Peng (2018) applied
the threshold model to verify the non-linear relationship between
urbanization and energy consumption with energy consumption as
the explained variable, the urbanization rate as the core explana-
tory variable, GDP per capita as the threshold variables. According
to the results, the major impact of urbanization is to drive energy
consumption in the accelerated stage of economic development.
When economic development moves into the post-
industrialization stage, the stimulation of urbanization on energy
consumption diminishes, suggesting that the process of urbaniza-
tion will come under significant pressure from energy consump-
tion. Moreover, Zhang and Cheng (2019) explored whether there
exists the threshold effect of tourism development on economic
growth across the 36 Wenchuan earthquake-affected counties in
China between 2008 and 2016. The estimated results confirmed the
validity of the tourism-led growth hypothesis for the disaster-
affected destinations. To be specific, the estimated coefficients of
tourism on economic growth will show a decreasing trend when
the levels of tourism specialization and industrial structure rise
above the threshold value.
Meanwhile, at the operational level, Wang (2015) introduced a
novel command (xthreg) to roll out the threshold regression
method by means of Stata programming, which is also adopted in
this study. Furthermore, he drew a systematic conclusion by pro-
posing not only the asymptotic distribution theory that applies to
the building of the confidence intervals, but also the bootstrap
method used to evaluate the significance of the threshold effect
from a statistical point of view.
Therefore, the main academic contributions can be made as
follows. Given the importance of a scientific evidence-based
research on the environmental impacts of economic growth,
which appreciated by the Chinese government and academics.
Meanwhile, due to the limited studies have focused on the non-
linear relationship of ambiguous economic growth and increas-
ingly serious air pollution in China, especially from the perspective
of the exogenous structural breaks reflected in the ongoing social
and economic transition process ("New Normal” era) in the 2010s.
Moreover, taking into account the remarkable economic develop-
ment and geographical disparities between various regions of
China, a further analysis of the spatial-temporal distribution based
on different significant threshold regimes on carbon emissions in
China that rarely noticed before will also be conducted, in order to
provide targeted policy suggestions from the respective of the
sustainable development goals. In consideration of these, the
threshold approach is taken in this paper to analyze a panel data
covering 30 provinces in China from 2001 to 2016, centered around
the 2008 global financial crisis, to empirically investigate how the
economic growth in China over this period will have a non-linear
impact on environment, with the different phases (or regimes) of
social and economic transitions as threshold variables, based on
which a specific region-based suggestion is made on sustainable
development for China.
3. Threshold regression model
Proposed by Tong (1978), Tong and Lim (1980), the threshold
model has been extensively applied in discrete time series that
exhibits piece-wise linearity (Lee and Sriram, 1999). Subsequently,
the application of the threshold model and other non-linear time
series models contributed to the development and the re-discovery
of numerous data analytic techniques (Tong, 2010). Given the
definition of the threshold model, regression coefficients in the
model are variable with structural breaks or threshold variables,
which are endogenously determined. Also, the samples can be split
into different regimes, as a result of which it is not necessary to
enter dummy variables based on unknown structural breaks
(Mehrara et al., 2015).
A single threshold regression model with fixed effects is defined
as:
yit ¼ mi þ q’x’it þ b1 xit Iðqit
gÞ þ b2 xit Iðqit _ gÞ þ εit (1)
In Eq. (1), i and t denote area and time effect, respectively; I (・)
represents an indicator function, equal to 1 (a single-threshold ef-
fect exists) or 0 (a linear effect exists). Variable qit acts as the
threshold variable and is referred to as a chosen one of China’s
social and economic transitions as structural breaks in this study. g
denotes the threshold value that splits the equation into two re-
gimes with two separate threshold coefficients, b1 and b2. Besides,
xit indicates the core explanatory variable, while yit means the
explained variable, which refers to the economic growth (real GDP
per capita) and environment (carbon emissions per capita) in
China, respectively. Lastly, the set of control variable x’it indicates
other aspects of social and economic transitions in China other than
the index as threshold variable with coefficient q0 , while mi denotes
the individual effect, εit represents the disturbance term.
 Z. Song / Journal of Cleaner Production 278 (2021) 123773
In order to predict the model in Eq. (1), individual fixed effect
(mi) will be eliminated through fixed effect transformation by
deducting its own average value, which can be simplified into Eq.
(2) as follows:


yit ¼ui þq’x’it þb’xit qit ;g þ εit
The threshold model can be simulated by following two major
processes, namely, the evaluation for the threshold values (g) with
corresponding threshold coefficients (b0 i), as well as the test for the
existence or significance of the threshold effect with a relevant
confidence level.
Firstly, the estimated threshold value (g) can be derived by
minimizing the residual sum of squared errors Sn ðgÞ ¼ ε’it εit . Once
the threshold value is calculated, the corresponding parameter
estimates of threshold (b) will be obtained by the ordinary least
squares (Chen, 2012).
Furthermore, in order to verify whether there exists a threshold
effect, that is, whether the threshold coefficients are identical in
each regime, the null hypothesis (H0: b1 ¼ b2) is set against the
alternative hypothesis (H1: b1sb2). Accordingly, if the null hy-
pothesis (of linearity) is rejected, a single threshold effect non-
linear regression (with two threshold regimes) will be performed.
In this case, the F statistic under the null hypothesis is expressed as
follows:
S0  S1 ðgÞ
F1 ¼
s2
where the S1 and S0 in Eq. (3) denote the residual sum of squared
errors with and without threshold effects, respectively, while s2
¼ i
S1 ðgÞ=n suggests the variance of residual (Chang et al., 2009). Based
on the null hypothesis of H0, the threshold value is not identified,
while F1 exhibits a nonstandard asymptotic distribution. In
consideration of this, Hansen (1999) developed a repetitive boot-
strap approach on the critical values of the F statistic, which makes
it distribute asymptotically, while verifying the significance of the
threshold effect by calculating the asymptotic p-values. In this
study, 1000 bootstraps will be run, using Stata 15.
When the confidence interval of threshold values is determined,
Hansen (1999) reported that g is a consistent estimator for g, and
proposed the null hypothesis of H0: Y ¼ Y0 to form the confidence
interval using the non-rejection region method with a likelihood
ratio (LR) statistic, which is expressed as Eq. (4):
LR1 ðgÞ  LR1 ðgÞ
LR1 ðgÞ ¼
s2
In the panel threshold model, Hansen (2000) also extended a
similar computation to multiple thresholds, with the general
approach being similar to the case of a single threshold (Chang
et al., 2009). To be more specific, the significance of the double
threshold effect will be tested under a single threshold model. If the
null hypothesis (single threshold model) is rejected, it will act as a
threshold model with a double threshold effect. Likewise, the triple
threshold effect will be validated using a double threshold model. If
the null hypothesis (double threshold model) is rejected, a triple
threshold effect will be exerted.
4. Data and variables
4.1. Variable definitions and descriptive statistics
The variables used in this study are listed in Table 2 and Table 3.
The data set is a panel of 30 Chinese provinces excluding Tibet,
5
Hong Kong, Macau and Taiwan from 2001 to 2016. To be more
precise, the social and economic transitions taking place in China
are overall presented as control variables below, acting as exoge-
nous threshold variables as well to verify the threshold effect on the
relationship between carbon emissions per capita (CEP as the
(2) explained variable) and real GDP per capita (RGDPP as the core
explanatory variable). In the meantime, this study employs the
logarithmic format of all data to prevent the model from fluctuation
without altering the estimation trend (Liu and Peng, 2018).
The aforementioned control variables cover the fields at eco-
nomic and scientific levels, industrial and capital structures, pro-
cesses of demography and urbanization, as well as the concerns in
China’s environment. To be more specific: firstly, AGE is measured
as the share of workers (15e64 years old) to the overall population
to express demographic changes; secondly, AREE and IND respec-
tively represent renewable energy industrial and manufacture in-
dustrial structure; thirdly, SOC and FC indicate the share of state-
owned and foreign capital to the total, respectively, for the pur-
pose of capturing the changes of capital structure; fourthly, the
level of urbanization is expressed as the ratio of urban population to
the total (URB); fifthly, TRA assesses the level of openness by
calculating the ratio of import/export output to GDP; lastly, TEPIP
and RDP refer to the indexes of scientific and technological level, as
well as the governmental effort on environmental issues.
4.2. Calculation of carbon emissions
(3)
Equation of calculation in carbon emissions is written as:
X
n
CEi ¼ ECi *SCEi *CEFi (5)
Given sample representativeness and data accessibility, in Eq.
(5), CEi (Carbon Emissions, ton) denotes annual carbon emissions,
calculated as the total amount from coal, petroleum and natural gas
in this study, i represents coal, petroleum and natural gas, respec-
tively. Moreover, ECi (Energy Consumption, ton) is equated with the
annual energy consumption of coal, petroleum and natural gas, SCEi
(Standard Coal Equivalent, tce/ton) of coal, petroleum and natural
gas reaches 0.7143 (tce/t), 1.4286 (tce/t) and 1.3300 (tce/t),
respectively, all of which are sourced from “China Energy Statistical
Yearbook” and are adopted to convert energy consumption into the
amount of standard coal. In this study, CEFi (Carbon Emission Factor,
ton/tce) is calculated as the average value from three Chinese
official agencies, namely, “National Environmental Administration
Greenhouse Gas Control Project”, “Climate Change Project of the
(4)
National Science and Technology Commission”, as well as “National
Development and Reform Commission (NDRC) Energy Research
Institute".
4.3. Panel unit root test and panel cointegration test
According to the existing studies, unit root test and cointegra-
tion test procedures are based on the assumption that variable is
inclined to shift towards a long-run equilibrium in their respective
period (Arestis et al., 2003). Since the panel data in this study has a
long time span and encounters unstable problems, spurious
regression is likely to be conducted. In the meantime, the threshold
regression model requires the threshold variables in the model are
stationary. Thus, prior to empirical estimation, a stationarity test is
first performed to check the stationary properties of observed
variables.
To ensure the robustness of test results, Stata 15 is adopted in
this study to perform the tests of Levin-Lin-Chu (LLC) (Levin et al.,
2002), Fisher-ADF (Choi, 2001) and Fisher-PP (Phillips and Perron,
6 Z. Song / Journal of Cleaner Production 278 (2021) 123773

Table 2
Definitions of applied variables and sources.

Variables Abbreviation Unit Description

Explained Variable CEP kg carbon/per carbon emissions per capita

Core Explanatory Variable RGDPP RMB/per real GDP per capita*
Control Variables AGE % ratio of workers (15e64 years old) to the total
AREE % ratio of renewable energy power generation to the total
SOC % ratio of state-owned capital to the total
FC % ratio of foreign-owned capital to the total
URB % ratio of urban population to the total
IND % ratio of manufacture industrial output to the total
TRA % ratio of total import/export output to GDP
TEPIP RMB/per environmental improvement investment per capita
RDP RMB/per R&D investment per capita

Sourced from China Energy Statistical Yearbook; China’s Industrial Statistics Yearbook; China Environmental Statistics Yearbook; China Science and Technology Statistical
Yearbook, and China Population Statistics Yearbook from 2001 to 2016.2000 taken as the base year in real GDP per capita.

Table 3 The Kao test is rejected by the Augmented Dickey-Fuller statistic at

Statistical properties of applied variables. a significance level of 5%, while the Pedroni test is entirely rejected
Variables Summary Statistics at a significance level of 1%. Thus, the cointegrated relationship
between carbon emissions per capita and each set of explanatory
Mean Std.Dev.* Minimum Maximum Observations
variables is empirically validated in China over time.
CEP 789.41 373.57 202.94 2220.93 480
RGDPP 21397.62 14810.36 2845.38 83286.23 480
AGE 73.06 3.76 63.46 83.85 480
AREE 22.31 22.61 0.01 91.16 480
5. Results and discussions
SOC 29.23 15.15 3.65 82.92 480
FC 9.64 8.91 0.12 40.06 480 5.1. Estimates of ordinary least squares (OLS) and fixed effects
URB 49.98 15.00 24.45 89.60 480 model (FE)
IND 46.77 7.80 19.26 61.48 480
TRA 31.35 36.81 1.35 187.50 480
TEPIP 415.61 415.32 18.87 3102.62 480 Firstly, prior to the threshold estimation, the standard linear
RDP 548.37 910.09 10.62 6831.92 480 regression of the OLS panel data model is conducted in this study. It
Std.Dev. ¼ Standard Deviation. can be split into fixed effects and random effects models. At pre-
sent, the Hausman test (Hausman, 1978) has been commonly
adopted to determine it, with the null hypothesis that “the model is
1988), for the purpose of verifying whether each variable has a unit a random effects model”. In this study, the results of the static linear
root with both individual intercept & time trend (I&T), or only in- panel data model with the Hausman test are achieved using Stata
dividual intercept (I) option. The null hypothesis of unit root test is 15, as listed in Table 6, where the null hypothesis is robustly
that, “there exists a unit root”. Accordingly, the results of the sta- rejected at 1% significance level, suggesting that the threshold
tionarity test are listed in Table 4, which reveals that the variables in regression model with fixed effects needs to be adopted. Moreover,
the model are stationary and satisfy the threshold regression Baltagi (2001) made a theoretical summary that a fixed effects
modeling conditions by rejecting the existence of the unit root model can be appropriately chosen for the sample when the sample
hypothesis (Liu and Peng, 2018). is selected from a specific individual, rather than from the popu-
To conduct a complete analysis, it is necessary to conduct the lation on a random basis. Since the observed samples in this study
test of cointegration on a panel dataset that verifies the existence of are deliberately selected from 30 provincial and municipal ad-
a long-run relationship (constant covariance) between variables. ministrations in China, the fixed effects model will be adopted
The corresponding estimated results are listed in Table 5. As properly in the following analysis.
revealed by the Kao test (Kao, 1999) and the Pedroni test (Pedroni, More specifically, the estimated results of the fixed effects
1999, 2004), there is a common null hypothesis of no cointegration. model demonstrate that on the whole, RGDPP, IND, TEPIP, AGE and
FC are positively associated with carbon emissions per capita in a

Table 4
Panel unit root test of variables.

LLC Fisher-ADF Fisher-PP

I&T I I&T I I&T I

lnCEP 7.118*** 11.578*** 35.938 93.652** 42.061 77.695*

lnIND 0.249 1.123 84.908** 51.862 17.049 50.695
lnSOC 3.464*** 5.99*** 28.839 87.696** 55.874 92.067***
lnTEPIP 3.322*** 3.745*** 52.634 41.536 73.334 37.242
lnTRA 6.290*** 0.254 100.867*** 47.956 46.619 41.791
lnAGE 2.139** 5.522*** 35.801 82.578** 58.747 116.039***
lnAREE 5.696*** 0.485 85.468** 76.530* 241.170*** 182.761***
lnURB 5.570*** 15.469*** 81.441** 52.688 47.402 331.815***
lnFC 5.082*** 2.800*** 58.005 68.411 95.286*** 118.173***
lnRDP 1.555 17.688*** 9.497 105.963*** 32.073 205.433***
lnRGDPP 8.967 14.728*** 16.355 202.988*** 13.533 151.229***

***, **, * denote significance at the 1%, 5% and 10% levels respectively.
 Z. Song / Journal of Cleaner Production 278 (2021) 123773 7

Table 5
The results of panel cointegration test.

Kao Test for Cointegration

Statistic p-value

Modified Dickey-Fuller 1.354 0.088

Dickey-Fuller 3.240 0.000
Augmented Dickey-Fuller 1.714 0.043
Unadjusted modified Dickey-Fuller 6.308 0.000
Unadjusted Dickey-Fuller 5.845 0.000

Pedroni Test for Cointegration

Statistic p-value Statistic p-value

lnIND 3.682 0.000 lnAREE 3.562 0.000

lnSOC 2.596 0.005 lnURB 3.654 0.000
lnTEPIP 4.399 0.000 lnFC 4.659 0.000
lnTRA 4.804 0.000 lnRDP 2.456 0.007
lnAGE 3.038 0.001 lnRGDPP 7.349 0.000

***, **, * denote significance at the 1%, 5% and 10% levels respectively.

Table 6
IV estimation of the multiple regression model.

OLS FE FE-2SLS

lnRGDPP 0.194*** 0.664*** 0.519***

lnIND 0.331*** 0.239*** 0.227***
lnSOC 0.115*** 0.076*** 0.017
lnTEPIP 0.249*** 0.058*** 0.043**
lnTRA 0.063*** 0.032 0.025
lnAGE 0.705* 1.080*** 2.131***
lnAREE 0.031** 0.22 0.020
lnURB 0.783*** 0.038 0.001
lnFC 0.088*** 0.086*** 0.046**
lnRDP 0.126*** 0.133*** 0.124***
Intercept 1.03e-07 1.53e-07 0.069***
Hausman test for fe vs re 61.24 (0.000)
Hausman test for endogeneity 64.47 (0.000)
Davidson-MacKinnon test 1319 (0.826)
R2 0.705 0.845
Observations 480 480 360
Underidentification Test*
Anderson canonical correlation LM statistic (without robust option) 312.440 (0.000)
Kleibergen-Paap rk LM statistic (with robust option) 48.351 (0.000)
Overidentification Test*
Sargan statistic (without robust option) 5.429 (0.143)
Hansen J statistic (with robust option) 5.095 (0.165)

***, **, * denotes significance at the 1%, 5% and 10% levels respectively. Anderson canonical correlation LM statistic (Anderson, 1951) and Kleibergen-Paap rk LM statistic (Paap
and Kleibergen, 2006) in underidentification test are applied to validate the correlation between IV and endogenous explanatory variable with P value in parentheses (Null
hypothesis: IV are not correlated with endogenous explanatory variable). Sargan statistic (Sargan, 1958) and Hansen J statistic (Hansen, 1982) in overidentification test are
used to test the exogeneity of IV with P value in parentheses (Null hypothesis: IV are not correlated with disturbance term).

statistically significant manner. By contrast, SOC and RDP are
negatively correlated with carbon emissions per capita in a
noticeable manner.
5.2. Estimates of fixed effects two stage least squares (FE-2SLS)
Nevertheless, considering that when explanatory variable and
disturbance term are correlated, along with an ambiguous causal
relationship between explanatory and explained variables that may
cause biased estimates, endogeneity problem should be taken into
account for estimation. Thus, as part of the robustness check of
estimated results, this study will also exploit the FE-2SLS, and apply
the lagged variables of endogenous explanatory variable as exog-
enous instrumental variables (IV) for correcting endogenous bias
(Yu, 2013).
Based on the null hypothesis that all explanatory variables are
exogenous variables, this study first performs the Hausman test for
endogeneity to validate whether FE-2SLS outperforms the fixed
effects model. If this hypothesis is rejected, endogenous
explanatory variables will be considered as existent. Besides, IV
should be employed in estimation. On that basis, under-
identification test and overidentification test with or without
robust standard errors respectively will be performed to determine
the rationality of instrumental variables. The null hypothesis of the
two is that IV and endogenous explanatory variables are not
correlated with each other nor are IV and disturbance term
(exogenous). Subsequently, valid IV will be introduced into the
model, and the Davidson-MacKinnon test (Davidson and
Mackinnon, 1993) is eventually adopted to verify whether there is
an endogenous problem in the model. The null hypothesis is that
the endogenously explanatory variable exhibits no relation to the
disturbance term, suggesting that no significant endogenous bias
exists in the model (Craigwell et al., 2012; Thanh, 2015; Arcabi c
et al., 2018).
Thus, considering the research topic in this study, along with the
multicollinearity statistics and correlation coefficients conducted
by Stata 15, real GDP per capita in China is consequently treated as
the endogenous explanatory variable, while 1, 2, 3 and 4 year(s)
8 Z. Song / Journal of Cleaner Production 278 (2021) 123773

lagged variables of real GDP per capita are taken as instrumental Table 8
variables simultaneously, as verified by various statistical tests that Threshold regression model estimates.

are of statistical significance, so as to avoid the correlation with Threshold variable

disturbance term while maintaining the relationship with endog- TEPIP AGE RDP AREE
enous explanatory variable.
lnIND 0.184** 0.284*** 0.220*** 0.166**
Afterwards, the statistically significant estimated results of FE-
lnSOC 0.055** 0.072*** 0.044* 0.085***
2SLS controlling the endogenous bias differ from those of the lnTEPIP 0.027 0.063*** 0.031 0.065***
fixed effects model in Table 6, suggesting the following points. lnTRA 0.022 0.025 0.030 0.025
Firstly, the RGDPP in FE-2SLS exhibits a lower noticeably positive lnAGE 0.962*** 1.518*** 0.972*** 0.972***
lnAREE 0.015 0.014 0.006 0.001
shock on carbon emissions per capita after the problem of endo-
lnURB 0.228 0.165 0.254* 0.060
geneity is corrected. Secondly, the estimated coefficients in the two lnFC 0.071*** 0.086*** 0.073*** 0.083***
models are maintaining identical positive/negative relationship lnRDP 0.046 0.098*** 0.042 0.047
and significance but SOC. Threshold Regime 1 0.652*** 0.394*** 0.653*** 0.438***
Threshold Regime 2 0.462*** 0.527*** 0.438*** 0.216***
Threshold Regime 3 0.480***
5.3. Threshold effect of China’s transitions towards carbon Intercept 0.104*** 0.043*** 0.112*** 0.051***
emissions R2 0.827 0.823 0.829 0.837
Observations 450 450 450 450

In the following section, the threshold regression model with
fixed effects will be simulated to observe how the economic growth
achieved by China impacts on environment at each phase of its
social and economic transitions, especially since the “New Normal”
era. Besides, given the lagged effects of economic growth and
correction for the endogenous problem at some levels, one year
lagged real GDP per capita will act as the core explanatory variable
in the estimation of the threshold regression model in this study.
As shown in Table 7, the first column only lists the variables with
statistically significant threshold effect in 10% and above to validate
whether there exists a threshold effect, while the out of all control
variables are presented in Table 2. Correspondingly, the third col-
umn indicates the threshold values that can separately split the
model into several regimes. Besides, the last two columns indicate
the F statistic with its probability value (or p-value) and 95% con-
fidence interval, respectively.
Consequently, after the threshold effect test is conducted for all
explanatory variables, TEPIP and RDP exhibit a single threshold ef-
fect with the value of RMB 243.69 and RMB 420.94, respectively. At
a significant level of 5%, the sample is split into two regimes.
Furthermore, AREE exerts a double threshold effect at a significance
level of 5% or above, with the sample split into three regimes. For
instance, TEPIP holds a single threshold value at RMB 243.69
noticeably as a structural break that divides the observation sample
into two regimes, as a result of which there will be definitely two
different relationships between the lagged real GDP per capita and
carbon emissions per capita. Moreover, AGE also exhibits a single
threshold effect with the value at 68.52% but only at the signifi-
cance level of 10%.
Furthermore, Table 8 presents the estimated results of the
threshold regression model with fixed effects. It primarily discusses
the following points. Firstly, RGDPP and CEP in China over the years
have a clearly positive relationship under all types of threshold
regimes, covering 1, 2 and 3 (low, mid and high) regimes. Secondly,
marginal lagged economic growth will evidently lower the level of
carbon emissions when it comes to a relatively higher regime of
TEPIP and RDP as a threshold variable. For instance, in the high
***, **, * denote significance at the 1%, 5% and 10% levels respectively.
regime of TEPIP (>RMB 243.69), 1% increase in lagged real GDP per
capita is demonstrated to generate 0.462% carbon emissions per
capita, a data lower than in low regime of statistical significance.
Thirdly, it reveals that IND, SOC, AGE and FC have a significant linear
relation to carbon emissions per capita in China when the rest of
the control variables that are only linearly related to carbon emis-
sions per capita is observed.
6. Verification of empirical analysis
So far, a non-linear threshold regression model with fixed ef-
fects has been applied in this study to explore the relationship
between economic growth and environmental pollution, on the
basis of the significant threshold effects at a time of social and
economic transitions in China. Then, as a means of verification in
this study, the spatial-temporal distribution derived from statisti-
cally significant threshold regimes will be specifically observed as
well, in order to account for those annual and spatial changes in
each threshold regime across 30 provinces from 2001 to 2016,
based on the threshold effect test and model estimation shown in
Tables 7 and 8. The number of provinces in every threshold regime
across years is visualized into a timeline chart. In the following
section, the different threshold regimes connected with different
relationships between economic growth and environmental
pollution will be shifted into the ArcGis 10 for plotting a diagram of
geographical distribution at a specific year (2001 and 2016) in this
paper. To be more specific:
Given the threshold effect test shown in Table 7, the both annual
and spatial distribution of single threshold effect model are illus-
trated in Fig. 4 and Fig. 5. It is worth noting that the provincial
number in the high regime of TEPIP (>RMB 243.69) correlated with
a lower level of carbon emissions per capita is on the increase
monotonously since there are merely 3 provinces in 2001 to all 30
provinces in 2013. It even became intensive since 2009 and started

Table 7
Threshold effect test and threshold estimates.

Threshold variable Threshold effect Threshold value F statistic 95% confidence interval

TEPIP single threshold 243.69 (yuan/per) 28.76** [225.64,245.14]

AGE single threshold 68.52% 18.73* [68.50,68.53]
RDP single threshold 420.94 (yuan/per) 35.92** [409.21,423.92]
AREE single threshold 2.25& 33.94*** [2.18,2.26]
double threshold 6.52% 21.60** [6.02,6.54]

***, **, * denote significance at the 1%, 5% and 10% levels respectively.
 Z. Song / Journal of Cleaner Production 278 (2021) 123773 9

Fig. 4. The number of provinces of threshold regimes across years.

Fig. 5. Spatial distributions of threshold regimes (RDP) in 2001 and 2016. “No data” areas include Tibet, Hong Kong, Macau and Taiwan.

Fig. 6. The number of provinces of threshold regimes across years.

10 Z. Song / Journal of Cleaner Production 278 (2021) 123773
Fig. 7. Spatial distributions of threshold regimes (AREE) in 2001 and 2016. “No data” areas include Tibet, Hong Kong, Macau and Taiwan.
to exceed the number in low regime (
RMB 243.69) in the same
year. Likewise, the slow increase in the high regime of RDP (>RMB
420.94) correlated with lower carbon emissions per capita has
exceeded the number in low regime (
RMB 420.94) since 2012. In
the meantime, the high regime of RDP in China expanded from
being confined to Beijing and Shanghai in 2001 to covering most of
east and central China in 2016, with the northwest and southwest
(or inland areas) of China excluded.
As for double threshold effect model presented in Fig. 6 and
Fig. 7, the provincial number in the high regime of AREE (>6.52%),
which in fact generates highest carbon emissions per capita, ex-
hibits a steady growth trend during the observation period and
clearly exceeds the low and mid regimes across the years. In the
meantime, the high regime of AREE is geographically spreading
from inland areas in 2001 to most regions in China except some
east-central areas in 2016, thereby exhibiting an apparent pattern
of spatial correlation.
7. Conclusions & suggestions
In this study, an attempt is made to demonstrate the connection
between economic growth and carbon emissions in China, with the
focus placed on how the economic and social transitions taking
place in China will make an impact on this relationship during its
“New Normal” era, based on a panel data of 30 provinces from 2001
to 2016.
At the beginning of estimation, this paper originally conducted
the FE-2SLS with 1, 2, 3 and 4 year(s) lagged variables of real GDP
per capita taken as instrumental variables, in order to interpret the
level of endogeneity, and ascertain the robust linear estimates
compared with that in the threshold model. Subsequently, the
threshold regression model is applied to investigate a non-linear
relationship between the level of lagged economic growth and
carbon emissions in China over time, with the social and economic
transitions taking place in China as the threshold effects. The major
estimation results are as follows. Firstly, GDP per capita and carbon
emissions per capita in China are positively associated with each
other under all types of threshold regimes, covering low, mid and
high regimes. Secondly, the high levels of the TEPIP (>RMB 243.69)
and RDP (>RMB 420.94) are empirically significant, and they are
likely to restrict the carbon emissions per capita in China with
economic growth. Thirdly, in a high regime for the AREE (>6.52%),
marginal economic growth is demonstrated to result in a higher
level of carbon emissions compared to other regimes. Fourthly,
based on the estimates in the FE-2SLS, with regard to the linear
relationship of control variables towards the carbon emissions per
capita, IND, AGE and FC are overwhelmingly indicative of positive
estimated coefficients as revealed by the estimated results obtained
from the threshold regression model with fixed effects, which
conforms to the results obtained from the FE-2SLS in this study. In
this regard, the major summaries and suggestions are made as
follows:
1) The level of economic development (GDP per capita) in China is
viewed as a significant influencing factor in carbon emissions
(carbon emissions per capita). Dissimilar from the traditional
empirical relationship between two such as the environmental
Kuznets curve (inverted U-shaped in most cases), a mono-
tonically decreasing positive relationship between the two
variables was verified in this paper, with regard to the invest-
ment in environmental governance and R&D, which is solely
reflected on the left side of the EKC. It was demonstrated that
China has not yet got past the peak point of the EKC, to reach a
relatively developed phase with a negative relationship to air
pollution in this study, suggesting that China remains on its way
of tackling environmental issues proactively. More specifically
in this study:
2) During economic and social development and transitions in
China, the relatively high level of economic growth with
continuous investment in environmental governance and R&D
activities plays a significant role in reducing carbon emissions,
which are supposed to be prioritized for sustainable develop-
ment in the future. For example, as a significant estimate com-
bined with the spatial distribution analysis of the RDP in this
paper, the government needs to maintain investment to control
the major pollutants and areas (e.g., air and water pollution in
Beijing-Tianjin-Hebei and surrounding regions), upgrade and
transform low-efficiency industries with excess production
 Z. Song / Journal of Cleaner Production 278 (2021) 123773
capacity (steel, cement and coal chemical, etc.), and increase
regulatory and financial supports for the development of such
hi-tech sectors as telecommunication, internet and artificial
intelligence. In the meantime, from the perspective of
geographic distribution, more investment and support in R&D
activities are needed in Northwest and Southwest China (Xin-
jiang, Qinghai, Yunnan, Guizhou and Guangxi in this study),
which is particularly essential to mitigating the carbon emis-
sions and ensuring sustainable development in the future.
3) More significantly related to energy structure, given the national
energy and economic development strategies for China (e.g.,
“West-East Electricity Transfer Project” and “West-East Gas
Pipeline Project”) since the early 2000s, as well as a long-term
dependence on imports of oil and natural gas. The coastal
areas in East China have experienced a fast-paced economic
growth with an extremely high rate of fossil energy utilization.
By contrast, those inland areas relatively rich in renewable en-
ergy (hydro, wind and solar power generation) have fallen
behind the east with regard to economic development, which
contributes to the relationship between a high level of utiliza-
tion in renewable energy (inland areas) and higher carbon
emissions (relatively low level of economic development) as
shown in Table 8 and Fig. 7. Therefore, considering the sus-
tainable development associated with both economic growth
and environment simultaneously from the perspective of en-
ergy policy, for “Economically significant provinces” primarily
located in East-Central China (Particularly, Beijing, Tianjin,
Shanghai, Jiangsu and Shandong in this study), as well as the
geographical and climatic conditions in these regions, it is a
necessity to upgrade its energy structure to renewable energy to
the greatest extent (e.g., nuclear and solar power generation).
Moreover, “Energy abundant provinces” located in inland China
ought to consistently abide by the integrated power planning
carried out by the central government and translate energy
advantage into economic growth. In the meantime, the quality
of investment and development of renewable energy power
generation shall be taken into consideration, with the devel-
opment of clean mining technology and the construction of
energy delivery channel in particular. Moreover, the capacity of
resource allocation is required to be boosted, which makes it
necessary to put in place the corresponding market mechanism
for cross-regional transaction in renewable energy from the
perspective of sustainability.
4) Lastly, in respect of the linear relationship of control variables
towards the carbon emissions per capita in China, due to the rise
in manufacture industrial output, working-age population and
inward foreign investment are directly contributory to
increasing the level of carbon emissions in this study, which is
consistent with the results from the FE-2SLS. It is demonstrated
that the Chinese government is supposed to develop high-tech
manufacturing industries with low emissions from the per-
spectives of industrial design, material, manufacturing and
transportation, for optimizing industrial structure and attracting
inward foreign investment into high & novel technology-
intensive industries and renewable energy fields under a
completed regulatory and lawful system.
Based on this paper, which only assumed one year lagged real
GDP per capita as the core explanatory variable for endogenous
correction at some level, considering the time-lag effects of air
pollution, as well as a better approach to solving the endogeneity
problem. A dynamic panel threshold analysis including a lagged
dependent variable, even augmented threshold regression with
endogeneity combined with instrumental variables are expected to
be developed and improved, from the perspective of integrity of the
11
model construction. Meanwhile, in terms of the promotion of
renewable energy with ongoing decolonization in China these
years, data selection and calculation for carbon emissions should be
extended to take into account, especially the increasing use of
renewable energy.
CRediT author contribution statement
Zhiguang Song: conducted the entire work in data collecting
and analysis, establishment of research model and interpretation,
conclusions and suggestions, as well as reviewing of this paper.
Declaration of competing interest
The authors declare that they have no known competing
financial interests or personal relationships that could have
appeared to influence the work reported in this paper.
Acknowledgements
This research did not receive any specific grant from funding
agencies in the public, commercial, or not-for-profit sectors.
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