Journal of Cleaner Production 276 (2020) 123156

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Journal of Cleaner Production

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Is China at the tipping point? Reconsidering environment-economy

nexus
Fei Li a, b, c, *, Eran Feitelson a, b, **, Yu Li a, c, ***
a
Institute of Geographic Sciences and Natural Resources Research, Chinese Academy of Sciences, Beijing, 100101, China
b
Department of Geography, Hebrew University of Jerusalem, Jerusalem, 91905, Israel
c
University of Chinese Academy of Sciences, Beijing, 100049, China

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

Article history: Environmental Kuznets Curve (EKC) has become the predominant approach between environmentalists
Received 5 May 2019 and sociologists to modeling environment-economy nexus during the past quarter century, also with
Received in revised form regard to China, the largest industrial pollutant emitter in the world, where unprecedented change offers
27 June 2020
a unique approach to the aggregate emissions. In the case of China the question is whether a tipping
Accepted 29 June 2020
Available online 17 July 2020
point can be reached without de-industrialization and at a lower income phase than in developed
economies. It is also the worldwide intrinsic concern of environment-economy nexus in the prospective
Handling editor: Yutao Wang industrialization process of developing countries. However, China relative researches involve some
existing challenges, such as cross-regional time series, various socioeconomic drivers, and turning
Keywords: thresholds. Taking the new normal China economy formulation into consideration, a rethink and reex-
Environment-economy nexus amination of the environment-economy relationship was performed, using the longest possible envi-
Industrial pollution ronmental and economic data from 30 provincial economies for the period of 1985e2017. Different from
New normal economy the existing mostly time-series based China EKC literature, not only the LLC, IPS, Fisher unit root tests,
Tipping point
Pedroni and Kao panel cointegration tests and the panel OLS are used, but, the problem of cross-sectional
dependence is handled in panel unit root tests across various cross-economies, and the error-correction
based cointegration test is employed, allowing for various forms of heterogeneity, robust against the
cross-sectional dependence, and the DOLS estimators are applied to resolve the standard OLS for serial
correlation and for endogeneity of regressors, especially in only small possible China samples. In
particular, the finding contrasts with the overly optimistic research of certain scholars, who state that
China could be on a clearly different path from the routes of some developed economies in the world,
realizing the environmental turnaround at low levels of economy and industrialization. China economy is
not just having a certain environmental “dividend effect”, but mainly faces a more significant environ-
mental “pressure effect”. Environmental input and its efficiency is still insufficient to perform the
intended pollution reduction effects. Fundamentally, the environmental investment as a proportion of
GDP should reach the past levels of some developed economies in the similar pollution-economy phase.
© 2020 Elsevier Ltd. All rights reserved.

1. Introduction along with economic growth has gained increasingly intensive

The efforts to reduce environment discharge simultaneously
* Corresponding author. Institute of Geographic Sciences and Natural Resources
Research, Chinese Academy of Sciences, Beijing, 100101, China.
** Corresponding author. Institute of Geographic Sciences and Natural Resources
Research, Chinese Academy of Sciences, Beijing, 100101, China.
*** Corresponding author. Institute of Geographic Sciences and Natural Resources
Research, Chinese Academy of Sciences, Beijing, 100101, China.
E-mail addresses: lifcas@gmail.com, lf@igsnrr.ac.cn (F. Li), efeitelson@gmail.com
(E. Feitelson), liyucas@163.com, liy@igsnrr.ac.cn (Y. Li).
global attention, also with regard to China (Brock and Taylor, 2004;
Davis et al., 2018; Qin et al., 2016). China has been experiencing
spectacular economic growth since the reform policy introduction,
and recently ranked the second highest GDP in the world, and
correspondingly a rapid urbanization process, as the largest
emerging economy in the world. However, China has also been
incrementally discharging pollutants concurrently, as the present
top producer of industrial pollution, over the last decades of years.
The recent concentrated outbreaks of environmental problems are
within the long-term accumulation of the many different growth

https://doi.org/10.1016/j.jclepro.2020.123156
0959-6526/© 2020 Elsevier Ltd. All rights reserved.
2 F. Li et al. / Journal of Cleaner Production 276 (2020) 123156
phases, domains and types in the initial stage of rapid industriali-
zation and urbanization, which is unique to the world and difficult
to be effectively solved. And, China has displayed the phasic char-
acteristics of the “Lewisian turning point” of a “catching-up econ-
omy”, with economy downturn pressure and the inflation risk, as
the proposed “new normal” of the economy in China. With China’s
long-time rapid growth, the excessive public investment, capital
surplus, trade surplus, resource liabilities, and environmental def-
icits interlace with one another. China economy might be under-
going major changes in growth rate, structure, mode, and dynamics
(Li et al., 2017), posing new challenges in handling the relationship
between environmental protection and economic growth (Liu et al.,
2015; Xu et al., 2019).
China’s “new normal” situation is closely related to economic
transformation, and involves changes in the state of economic,
political, social, and environmental fields, in the process of indus-
trialization and urbanization (Hong and Ren, 2018; Liu et al., 2017;
Stark and Bruszt, 1998). Chinese economy is confronted with crit-
ical pressures and challenges, and also facing important historical
opportunities for catch-up economic transformation and upgrading
(Li et al., 2017; Hong and Ren, 2018). Economic growth under the
new normal would likely have positive effects on the environment
improvement in terms of economic and institutional transitions
(Hong and Ren, 2018; Ouyang et al., 2019). However, the growth
could still generate a significantly large pressure on environmental
pollutants reduction (Chen and Cheng, 2018; Xu et al., 2019). The
research on the environment-economy nexus (Stark and Bruszt,
1998; Xu et al., 2019) and the relative governance issues under
the new normal (Hong and Ren, 2018) is needed to advance policy
debating for the future environmental improvement. It is a great
challenge to resolve the increasingly acute and complex contra-
diction, with China’s ongoing and past unprecedented change, and
these processes also provides a quintessential occasion to solve the
environment-economy nexus (Qin et al., 2016), which is of both
China and global significance.
Against the viewpoints regarding the “Limits to Growth” from
the Club of Rome (Daly, 1973; Ehrlich and Holdren, 1971; Meadows
et al., 1972), the sustainability paradigm based on the opposite
growth-pollution interpretations began to be widely acknowledged
(Davis et al., 2018; Henninger and Boyer, 2016; Panayotou, 1993;
Simon and Kahn, 1984). Then, the classic environmental Kuznets
curve (EKC) hypothesis was proposed, where an inverted-U shaped
Kuznets curve relationship was investigated between economic
growth and environmental pollution (Grossman and Krueger, 1991;
Henninger and Boyer, 2016; Panayotou, 1993), and has become the
dominant approach between environmentalists and sociologists to
modeling environment-economy nexus during the past quarter
century. A large number of subsequent empirical studies on the
international scene further verifies the existence of the EKC, mostly
focusing on developed economies cases at first (Grossman and
Krueger, 1991; Stern et al., 1996), and then developing countries
and emerging economies over two decades of years, and currently
continues to be the environmental research hotspots (Gill et al.,
2018; Mikayilov et al., 2018; Sarkodie and Strezov, 2019), due to
increasingly severe pollution situation of developing countries. Yet
the debate is still augmenting, based on various EKC outlooks, also
embodied in several significant review literatures (Brock and
Taylor, 2004; Chowdhury and Moran, 2012; Henninger and Boyer,
2016; Stern, 2017). The progress of approach to the EKC has
mainly focused on the non-stationary time series and the cross-
regional dimensions using panel data on a global scale (Ridzuan,
2019; Rosa and Dietz, 2012; Stern and Van Dijk, 2017), in devel-
oped countries (Franklin and Ruth, 2012; Liddle and Messinis, 2015)
and developing countries (Behera and Dash, 2017; Mikayilov et al.,
2018; Sarkodie and Strezov, 2019).
The research of China’s EKC also gradually develops (Brajer et al.,
2011; Diao et al., 2009; Yao et al., 2019; Zhang et al., 2019). Common
criticism of the China EKC studies are due to statistics of non-
stationary time series (Chowdhury and Moran, 2012; Wagner,
2015) and the cross-regional information (Yao et al., 2019; Yu and
Chen, 2012), and the combined panel data operating is requisite.
And, interprovincial/interstate analysis based on inter-country
level information could make it more secure to suppose that all
cross-sections follow the uniform shape curve, compared to EKC for
cross-country data, taking various endowments into consideration
(Chowdhury and Moran, 2012; Gill et al., 2018; Li et al., 2016a).
Besides, the urbanization, as well as openness and employment
level, could be worthy of more attention for researching special
environment issues of transitional economies. Furthermore, there
are few EKC studies with regard to the growth effects on emissions
allowing for the inputs on the environment protection in emerging
countries, including the aforementioned factors, especially in
China. Additionally, EKC empirical analyses have been debated
since that concerns regarding the threshold explanations convert-
ing into diminishing industrial pollutant discharge varies widely
between contaminants and between samples (Brock and Taylor,
2004; Kaika and Zervas, 2013; Bergh et al., 2019), according to
their emission characteristics and the pertinent regions, sectors and
policies (Chowdhury and Moran, 2012; Li et al., 2016b; Stern, 2017;
Zhang et al., 2015). The debating crux is that quite a lot of previous
estimated results on China samples are worth reconsidering by as
much data as possible, especially within the present and future
context of the new normal economy, many of which claimed the
correlation between environment and economy in China could be
very different from the path taken by some developed countries,
e.g. European Union countries, in the main literature of recent de-
cades, that China’s environmental improvement can be achieved at
lower levels of income growth and industrialization (Brajer et al.,
2011; Diao et al., 2009; Yu and Chen, 2012; Zhang et al., 2019).
But the facts are oppositely as mentioned above, that China is still
leading the world in resource consumption and industrial waste
emissions in the past few years. Regarding the extent that China has
tried to tackle the incremental environmental pressures as well as
the on-going commitment to industrial growth and urbanization
within the context of the new normal, the insufficient parts theory
presently plays in the literature have caused stumbling troubles
when clarifying the concrete EKC. Particularly, China and devel-
oping countries’ EKC agreement remains elusive and still under
disputation on fitting identification (Chowdhury and Moran, 2012;
Gill et al., 2018; Yao et al., 2019; Zhang et al., 2019).
The paper differs from the preceding China studies in the
following aspects. The study uses the data of three types of in-
dustrial pollutant emissions, e.g. industrial wastewater discharged,
solid waste materials discarded and waste gas emissions, as long as
possible up to now, combined with all the main socioeconomic
drivers as mentioned in the environmental effects and the human
drivers literature (Commoner et al., 1971; Davis et al., 2018; Liddle
and Messinis, 2015; Rosa and Dietz, 2012; Stern, 2017) that affect
the environment, including income, industry structure, energy use,
foreign economy level, and unemployment, to investigate China’s
EKC and whether China is at the tipping point. Moreover, the study
handled the issues of cross-sectional dependence explicitly across
the various national provincial economies, on account of the
possible trans-provincial pollutants movement and trans-boundary
environmental issues. Furthermore, the study also incorporated
and considered in particular the role of the environmental inputs
and urbanization within the context of special economy transition
as an important factor for pollutants emission. This would advance
threshold explanations between contaminants and between sam-
ples. To clarify the relationship between three types of pollutant
 F. Li et al. / Journal of Cleaner Production 276 (2020) 123156
emissions and the socioeconomic factors, the recently introduced
error-correction based cointegration test was used, allowing for
various forms of heterogeneity, robust against the cross-sectional
dependence, as well as both the residual based Pedroni and Kao
cointegration test, and, the dynamic ordinary least squares esti-
mator is used to resolve the elimination of endogeneity and serial
correlation, especially in only small possible China sample. To our
knowledge, few China EKC studies considered the discussion of
cross-sectional dependence in panel data and the error-correction
based cointegration tests. In addition, it tries to reveal that the
environment-economy correlation cannot be very different from
the path taken by some developed countries, which contrasts with
the claim of certain scholars, that environmental improvement can
be achieved at lower levels of income growth and industrialization.
Generally, EKC research has mainly developed in conjunction with
the advancement of global industrialization based on its pollutants
discharge. Discussing the EKC it can be noted that part of the
reduction in emissions was due to de-industrialization. In the case
of China the question is whether the threshold effect and a tipping
point can be reached without de-industrialization and at a lower
income phase than in developed economies. This endeavor is of
global significance. It is also the worldwide intrinsic concern of
environment-economy nexus in the prospective industrialization
process of developing countries.
The remaining sections of the paper are as follows: Section 2
describes the methodology. The data sources and the applied EKC
model are described, and the available panel cointegration esti-
mation technologies are summarized. In section 3, unit root prop-
erties of the panel data are firstly examined, and then the panel
cointegration test is performed. Further, various cointegrating
environment-economy nexus estimation results are considered. In
section 4, environmental pressure effects with respect to economic
growth, as well as environmental dividend effects, are discussed.
Later, environmental investment effects are considered. In addition,
the EKC transition threshold is investigated and results are
compared to the literature. Finally, conclusions are drawn and some
policy implications are given in section 5.
2. Materials and methods
A panel reexamination of the EKC in China was performed
hereinafter. The data covers 30 provincial economies in mainland
China during the period from 1985 to 2017, sourced from the China
Environment Statistical Yearbooks, China Statistical Yearbooks,
China Energy Statistical Yearbooks, and China Environmental Sta-
tistics Bulletins of the corresponding years. Tibet is excluded due to
data unavailability in some years.
2.1. Empirical model
There is still little consonance on the human drivers of changes
in pollutant emissions (Commoner et al., 1971; Davis et al., 2018;
Ehrlich and Holdren, 1971; Liddle and Messinis, 2015; Rosa and
Dietz, 2012; Stern, 2017). EKC research should be focused on un-
derstanding what actually reduces pollution (Bergh et al., 2019;
Brock and Taylor, 2004; Sarkodie and Strezov, 2019). Regarding a
transitional emerging economy, these variables mainly include in-
come, industry structure, foreign capital, foreign trade, unem-
ployment, energy use, urbanization, and environmental inputs. To
estimate China’s environment-economy nexus, the based form of
the proposed model is as follows:
Y ¼ f ðX; ZÞ
in which, Y is the emissions of industrial pollutants, including
3
wastewater discharge (WW), waste gas (WG), and solid waste
(SW). X represents the economic growth, i.e. per capita gross do-
mestic product (PGDP), and Z represents the other influencing
variables, including urbanization rate (UR), secondary industry
proportion (SIGDP), energy use per unit of GDP (ENGDP), foreign
capital proportion of GDP (FDIGDP), foreign trade proportion of
GDP (IMEXGDP), unemployment rate (UE), and environmental in-
puts proportion of GDP (EIGDP). Then Eq. (1) can be interpreted
with a Cobb-Douglas function form as follows:
b g
Ymn ¼ Xmn Zmn emn (2)
where b denotes the externalities arising out of the rising economic
growth. Similarly, the parameter g represents the elements arising
out of the other influencing variables. It is presumed that the
negative effects by certain factors would outweigh the initial pos-
itive effects in the long term. So, it is presumed that the expected
sign of the parameters for ENGDP, SIGDP, and UR and others would
be positive, and that for EI be negative. The EKC function form can
be available from the literature (Gill et al., 2018; Franklin and Ruth,
2012; Liddle and Messinis, 2015; Stern and Van Dijk, 2017; Zhang
et al., 2015). A cubic EKC in levels might simply be a polynomial
approximation of a logarithmic curve (Brock and Taylor, 2004;
Kaika and Zervas, 2013; Stern and Van Dijk, 2017). Then all the
selected variables are transformed into natural logarithms as
shown in Eq. (3), i.e. the proposed empirical regression model in
panel form.
2
Ymn ¼ am þ dn þ b1 Xmn þ b2 Xmn þ gZmn þ εmn (3)
where m indexes the provincial economies and n years. εmn is the
idiosyncratic error term. Both b1 >0 and b2 <0 signify an inverted U-
shaped EKC relationship.
2.2. Econometric approach
The study first applies the panel Levin-Lin-Chu (LLC) (Levin
et al., 2002), Im-Pesaran-Shin (IPS) (Im et al., 2003), Fisher-ADF
and Fisher-PP (Maddala and Wu, 1999; Choi, 2001) to syntheti-
cally test unit root processes of the variables (Wagner, 2015; Liddle
and Messinis, 2015). Furthermore, a Pesaran panel unit root test
(Pesaran, 2007; Pesaran et al., 2015) is applied, to handle the
problem of cross-sectional dependence across cross-provincial
economies, considering trans-provincial pollutants movement
and environmental issues across the China provincial economies.
Herein, the general residual interdependence, the omitted
observed common factors and unobserved common factors might
also raise the possibility of cross-sectional dependence (Pesaran
et al., 2015; Behera and Dash, 2017). The further interest in
environment-economy research is to seek to infer the cointegrating
relationship among variables. The seven Pedroni cointegrating
statistics, namely Panel v, Panel rho, Panel PP, Panel ADF, Group rho,
Group PP, and Group ADF statistics, and a Kao statistic are con-
ducted to test for the existence of a cointegrated combination of the
unstable series, with regard to the Engle-Granger cointegration
equation residuals (Engle and Granger, 1987; Kao and Chiang, 2000;
Pedroni, 2004; Vance et al., 2013). In addition, the error-correction
based cointegration test (Westerlund, 2007; Westerlund et al.,
2015) is used, allowing for various forms of heterogeneity, robust
against the cross-sectional dependence. It might be able to produce
more powerful tests relative to other residual-based cointegration
tests, taking no error-correction as null hypothesis, on account of a
(1) possibly invalid common factor restriction (Westerlund et al.,
2015). The two group mean error-correction based cointegration
statistics (GECt and GECa) are defined to test a whole cointegrated
4 F. Li et al. / Journal of Cleaner Production 276 (2020) 123156

alternative, and the other two panel error-correction based statis- the Pedroni test aims to the estimation of cointegration relation-
tics (PECt and PECa) involve that at least one cointegrated cross- ship. First, it is instructive to handle the problem of cross-sectional
section unit exists. Herein, the study took account for various dependence across the 30 provincial economies; second, it points
panel unit root and cointegration tests to check for the robustness to trans-border movement of pollutants, and the cross-provincial
of the results, due to various examination strategies. Subsequently, dependence in China, robust to discover the intensity of cointe-
the final interest is to estimate the consistent parameters in the EKC gration. It is reported in Table 3 that the panel cointegration test
model. Compared to the panel OLS estimator, the study consider results basically display the existence test of the cointegrating
various forms of the EKC residual-based panel estimations, e.g. the environment-economy relationship, using the heterogeneous
dynamic OLS (DOLS) estimators (Choi and Saikkonen, 2010; panel cointegration technology.
McCoskey and Kao, 2001; Pedroni, 2004) that produce asymptoti- Table 4 displays the panel estimation results of the cointegrating
cally unbiased, normally distributed coefficient estimates. There environment-economy nexus, among the variables of the EKC by
exist independence in the errors across cross-sections. These esti- the panel estimators. In contrast to OLS estimator, DOLS estimation
mators could resolve the elimination of endogeneity and serial involves an expanded equation introducing the leads and lags of
correlation, especially in only small possible China samples. Table 1 the difference terms of original variables, which could check for
presents summary of the abbreviations . endogeneity and be robust to serial correlation. The Monte Carlo
simulations, as well as bias and size-corrected power tests indicate
3. Results that the applied panel DOLS estimator demonstrates relatively less
bias and often better performance than the others, especially
The study proceeded with the panel cointegration estimation within only an available small sample context of China environ-
techniques of EKC. Time series data are firstly tested for stationarity, mental data (Kao and Chiang, 2000; Jo €rg and Pesaran, 2008; Li
taken as the unit root examination details by panel unit root test et al., 2016). The values of the DOLS estimators are determined
methods. Using not only LLC, IPS, and Fisher statistics, each vari- under the itemizing leads and lags modification according to
able’s stability is tested but also considering a Pesaran panel unit Schwarz Information Criterion (SIC) in changes of regressors in the
root test (Pesaran, 2007; Pesaran et al., 2015) to address the exis- regression.
tence of cross-sectional dependence and improve robustness. It is
shown in Table 2 that the unit root properties of the panel data,
indicating that the null of unit root is strongly rejected for the first
order differences, and all the series are I (1) process on the whole, 4. Discussions
regardless of individual effects, individual effects and linear trends.
Then, based on residual cointegration test, Panel v-Statistic, Panel 4.1. Substantial environmental pressure effects
rho-Statistic, Group rho-Statistic, Panel ADF-Statistic, Group ADF-
Statistic, Panel PP-Statistic, Group PP-Statistic and Kao statistic By as many observations of 33 years for 30 provincial economies
are tested for Panel cointegration. Monte Carlo simulation (Pedroni, in China, the estimation results indicate that the relationship
2004; Vance et al., 2013) indicates that the ADF statistics and PP among the three types of environmental pollution variables (the
statistics are more reliable with better small sample properties than volume of wastewater discharged, volume of solid waste materials
the others. Additionally, Westerlund error-correction-based coin- generated and volume of industrial waste gas emissions) and in-
tegration methods are also applied to test the co-integration rela- come growth variables does not yet present the inverted U-shaped
tionship between variables, based on four cointegration statistics, curve (See Table 3). China is still subject to an enormous ongoing
i.e. GECt, GECa, PECt, and PECa, considering cross-heterogeneity. industrial emission pressure. The industrial emissions intrinsically
That would not only estimate the long-run relationship in case of demonstrate an increasing gradually connection along with eco-
the cross-sectional dependence, sensible to apply the specifica- nomic growth, and definitely the threshold level of the EKC has yet
tions, but also consider the various forms of heterogeneity, while to appear. The environment situation will exhibit a relatively large
“growth pressure effect”. Although the present speed of growth has
slowed under the new normal, the pollutant discharge reduction
Table 1 still faces significant challenges and considerable difficulties in the
Summary of the abbreviations.
future, in view of China’s present and the coming economy mode
Abbreviation Description and mechanism from the overall. China’s industrial and techno-
EKC Environmental Kuznets Curve logical choices for reducing discharge, accomplishing the effects of
WW Wastewater Discharge the relative technological innovations, and the need to enforce such
WG Waste Gas industrial upgrades could suffer considerable appended costs,
SW Solid Waste
which might better demonstrate the situation in China to the in-
PGDP Per Capita Gross Domestic Product
UR Urbanization Rate ternational community. The respective elasticity coefficients of the
SIGDP Secondary Industry Proportion three types of industrial emissions for economy and urbanization
ENGDP Energy Use Per Unit of GDP have a relatively large positive value significantly, indicating that, at
FDIGDP Foreign Capital Proportion of GDP a certain period, industrialization and urbanization will still have an
IMEXGDP Foreign Trade Proportion of GDP
UE Unemployment Rate
upward effect on aggregate pollution emissions, and new devel-
EIGDP Environmental Inputs Proportion of GDP opment models are imminent. The implementation mechanism of
LLC Levin-Lin-Chu increasing environmental returns to scale deserves further study
IPS Im-Pesaran-Shin (Kaika and Zervas, 2013; Stern, 2017). To a very large extent, the
ADF Augmented Dickey-Fuller
environment-economy curve and the growth of industrialization in
PP Phillips-Perron
GEC Group Error-Correction different urbanizing regions are closely correlated. Certain periods
PEC Panel Error-Correction in the future, particularly the “14th and 15th Five-Year Plan” period,
OLS Ordinary Least Squares might continue to be important phases for the achievement of
DOLS Dynamic Ordinary Least Squares industrialization and the rapid advancement of urbanization sup-
SIC Schwarz Information Criterion
ported by resource liabilities and environmental deficits.
 F. Li et al. / Journal of Cleaner Production 276 (2020) 123156 5

Table 2
Panel unit root test results.

LLC IPS Fisher-ADF Fisher-PP t-bar

PGDP IE 4.28 11.65 11.73 33.67 8.74

IE and LT 0.23 1.59 57.89 22.01 0.44
D(PGDP) IE 9.91*** 10.61*** 226.37*** 201.73*** 18.73**
IE and LT 8.43*** 8.69*** 188.64*** 161.69*** 15.26***
PGDP square IE 7.57 14.86 8.22 15.92 11.42
IE and LT 0.19 3.72 40.17 18.04 0.69
D(PGDP square) IE 7.89*** 8.53*** 190.47*** 179.83*** 17.15***
IE and LT 7.09*** 7.87*** 176.13*** 147.71*** 14.88**
UR IE 2.47 7.92 9.26 9.45 2.85
IE and LT 0.73 0.54 41.64 41.75 6.82*
D(UR) IE 21.33*** 19.44*** 409.52*** 413.27*** 32.78***
IE and LT 19.17*** 16.88*** 334.38*** 375.83*** 29.78***
SIGDP IE 0.13 2.22 36.05 35.00 4.39
IE and LT 2.57*** 0.84 66.18 49.37 8.99*
D(SIGDP) IE 21.11*** 20.46*** 438.01*** 456.15*** 32.02***
IE and LT 18.71*** 17.94*** 353.40*** 379.51*** 26.62***
EIGDP IE 0.46 4.58 20.34 20.08 1.34
IE and LT 8.01*** 1.56 76.20** 78.42** 2.49*
D(EIGDP) IE 16.00*** 8.94*** 190.64*** 229.05*** 10.95***
IE and LT 13.95*** 3.09*** 130.50*** 189.02*** 2.14**
ENGDP IE 1.75** 2.98 38.78 33.88 0.02
IE and LT 1.94** 1.76** 78.15** 31.45 4.28**
D(ENGDP) IE 15.67*** 14.64*** 302.09*** 300.05*** 25.28***
IE and LT 13.22*** 11.99*** 231.00*** 232.91*** 22.21***
WG IE 7.60 13.50 8.37 10.08 10.20
IE and LT 2.57*** 0.17 77.07* 68.47 8.03**
D(WG) IE 25.20*** 23.79*** 499.63*** 533.44*** 31.78***
IE and LT 20.09*** 21.17*** 470.07*** 1129.56*** 24.92***
WW IE 0.55 1.12 47.60 41.28 3.25**
IE and LT 0.02 0.79 50.61 45.51 6.34
D(WW) IE 22.99*** 21.95*** 476.74*** 512.29*** 33.11***
IE and LT 19.55*** 18.71*** 368.86*** 435.64*** 32.21***
SW IE 7.33 12.62 14.95 15.30 9.52
IE and LT 2.20** 2.19 42.14 41.70 8.78*
D(SW) IE 23.94*** 23.69*** 480.51*** 553.66*** 32.48***
IE and LT 19.35*** 23.41*** 692.67*** 1919.46*** 27.44***

The [t-bar] statistic is reported and has a nonstandard distribution in the Pesaran panel unit root test. All the cross-sectional series involve non-stationary process and has a
nonstandard distribution for the null hypothesis. D denotes first difference. Lag length selection is based on SIC. Bartlett Kernel and Newy-West bandwidth selection are used.
***, ** and * indicates statistical significance at the 1%, 5% and 10% level, respectively. IE and LT represents individual effects, individual effects and linear trends, respectively.

Table 3
Panel cointegration test results.

Panel v Panel rho Panel PP Panel ADF Group rho Group PP Group ADF Kao statistic GECt GECa PECt PECa

WG Without trend 0.48 1.10 12.93*** 12.36** 3.93 15.09** 11.80*** 10.10*** 0.91* 5.92 1.18* 2.88
With trend 2.57 2.79 14.74*** 13.06*** 5.46 20.71*** 12.17** e 2.84*** 7.08 1.89** 4.31*
WW Without trend 0.29 2.83 5.35* 6.65** 4.98 10.46*** 9.08** 2.19** 3.07* 6.65 1.93* 2.11
With trend 2.00 4.04 7.52*** 7.79** 5.55 16.19*** 10.32*** e 1.56** 1.68 1.89** 4.31
SW Without trend 1.23* 1.44 6.40*** 10.80*** 3.27 20.52*** 13.58** 3.81*** 5.56*** 3.20 4.41*** 2.13
With trend 0.03 2.81 14.76** 11.05*** 4.91 24.72*** 13.98*** e 3.54*** 8.94 6.48*** 3.07

The null hypothesis of all tests is no cointegration. Pedroni Statistics are asymptotically distributed as normal. The variance ratio test is right-sided, while the others are left-
sided. The selection of lag length is based on SIC. Newey-West bandwidth selection and Bartlett kernel are used. ***, ** and * rejects the null of no cointegration at the 1%, 5%
and 10% level, respectively.

4.2. Environmental dividend effects
The rapid growth of the economy has resulted in people being
more focused on sustainability of the environment and the
continuous increase in the scale of environmental inputs. Since the
1990s, China’s environmental investment has also been rising
steadily, particularly in the past ten years: it almost quadrupled
from CNY 256.6 billion in 2006 to CNY 953.9 billion in 2017, indi-
cated in China Environmental Statistics Bulletins, various years.
However, has the investment in environmental improvement
achieved its intended effect? The environmental governance vari-
able is added below to the EKC estimation. Then only the industrial
exhaust gas discharge and economic growth variables can basically
show come into being the inverted U-type curve nexus, except for
the other two types of pollutant emissions. Meanwhile, under the
new normal context, advancement and structural optimization of
industries would effectively reduce environmental pressure via
economic growth, generating“compensating effects” (Franklin and
Ruth, 2012), that is one of the “growth dividend effects” of the
environmental attributes. And, the respective elasticity coefficients
of the three types of emission indicators with the industry structure
variable and energy intensity variable are all positive value signif-
icantly (See Table 3), indicating that, with the increasing level of the
economy structure and industry technology, continuously
upgrading industries can promote the separation of environmental
discharge and the economy, as a result of the macro-sectorial
6 F. Li et al. / Journal of Cleaner Production 276 (2020) 123156

Table 4
Panel cointegration coefficients results.

PGDP PGDP square ENGDP SIGDP UR EIGDP

WG DOLS I 1.57*** 0.16***

DOLS II 0.66** 0.10*** 0.71*** 0.27** 0.31***
DOLS III 5.06*** 0.25** 0.02 0.07
DOLS Ⅳ 1.45*** 0.05***
DOLS Ⅴ 1.17*** 0.02 0.22* 0.36 0.33**
DOLS Ⅵ 1.90*** 0.11 0.04 0.45***
OLS Ⅶ 2.22*** 0.10***
OLS Ⅷ 1.04*** 0.01 0.92*** 0.39*** 0.04
OLS Ⅸ 4.10*** 0.21*** 0.77*** 0.07*
WW DOLS I 2.25*** 0.13***
DOLS II 1.78*** 0.11*** 0.47*** 0.86*** 0.20**
DOLS III 0.92 0.02 0.72** 0.06
DOLS Ⅳ 2.85*** 0.18***
DOLS Ⅴ 2.69*** 0.16*** 0.16 1.27*** 0.69***
DOLS Ⅵ 3.32*** 0.23*** 1.14*** 0.40***
OLS Ⅶ 1.41*** 0.04***
OLS Ⅷ 0.44* 0.07*** 0.75*** 0.72*** 0.15***
OLS Ⅸ 1.34** 0.06 0.42** 0.06*
SW DOLS I 1.79*** 0.16***
DOLS II 1.63*** 0.15** 0.60*** 0.25* 0.34***
DOLS III 5.43** 0.25*** 0.34 0.08
DOLS Ⅳ 1.68*** 0.09***
DOLS Ⅴ 0.84*** 0.01 0.47*** 0.30 0.60***
DOLS Ⅵ 1.79*** 0.12*** 0.65*** 0.33***
OLS Ⅶ 1.77** 0.09***
OLS Ⅷ 0.79*** 0.01 0.83*** 0.39*** 0.05
OLS Ⅸ 2.56* 0.10** 1.76*** 0.06

DOLS include leads and lags for the differenced regressors based on SIC specification. Bartlett kernel and Newey-West bandwidth are used for coefficient covariances. ***, **
and * denotes the estimator of a parameter is significant at 1%, 5% and 10% level, respectively. Specifications DOLS Ⅳ, DOLS Ⅴ, and DOLS Ⅵ, present the DOLS estimation results
without time dummies, when WG, WW, and SW is respectively regressed to the variables in EKC model. Similarly, specifications DOLS I, DOLS II, DOLS III, OLS Ⅶ, OLS Ⅷ, and
OLS Ⅸ present the estimation results with time dummies.

shares evolution (Chowdhury and Moran, 2012; Li et al., 2016). The
environment-economic pattern is to a considerable degree closely
correlated with the industrialization progress of the respective
regions. Some relatively more developed areas of the eastern areas
of China have already entered the post-industrialization phase,
while the mid-western region remains in the middle stages of
industrialization with certain areas still lingering in the initial
stages of industrialization (Hong and Ren, 2018; Liu, 2017). The
eastern regions have actively engaged in upgrading and renewing
industry structures and adopting cleaner and innovation-driven
models, resulting in environmental pressure continuously dimin-
ishing with industry growth, e.g. “learning by doing” effects (Brock
and Taylor, 2004; Chen and Cheng, 2018; Xu et al., 2019). Corre-
spondingly, the awareness and capabilities in environmental
management have also continuously improved, and a more strict
environmental regulations have in turn encouraged the trans-
formation of the economic structure towards lower pollution.
Effective environmental policies, such as government management
and stakeholders’ involvement, might be the critical determinant
for environmental dividend effects (Bergh et al., 2019; Stern, 2017).
Additionally, regional trade plays also a key role in the EKC. Heavily
polluting industries in certain developed regions are continuously
moving out, and the import of goods whose production generates a
relatively high degree of pollution has reduced the local issues,
realizing an external transfer of environmental pressure.
4.3. Insufficient environmental investment
The respective coefficient of the emission of industrial pollutant
including WW, WG, and SW, for environmental investment vari-
able, is still not significant. The environmental inputs are not suf-
ficient to have significant impact on the EKC, only limited effects on
reducing the discharge volume, in spite of the fact that it has been
rising basically in the past decades of years. Although China is
increasingly emphasizing environmental protection and the con-
struction of an ecological civilization as national goals, past envi-
ronmental governance investment and the investing efficiency has
not caught up with economic growth and, correspondingly, envi-
ronmental investment has lagged behind the growth of economy
and has not reached the intended level, in particular when facing
the complex environmental affairs in China. That even appeared to
decline gradually in the recent five years, as a time of rapid income
and emission growth, and there is always a lag in the investment
effect. In addition, since the year 2000, although the financial
revenue of the Chinese government has continuously increased at a
sustained high and stable speed, the proportion of environmental
investment in terms of the government’s financial revenue has not
increased or changed much, or at least an equivalent level. The
national incrementally escalating fiscal and monetary capabilities
and budgetary scale have not been in sync with the environmental
protection fields.
4.4. EKC transition threshold
The EKC in industrial waste gas occurs to exhibit an inverted-U
shape curve, after adding the environmental input variable,
whereas its turning point does not yet emerge at an exceptionally
low economic growth level, situated at GDP per capita of over USD
17,000, (2017 average exchange rate, and 2017 price) (See Table 3).
It is shown that, under the current environmental input and
governance model, China is still facing relatively substantial envi-
ronmental discharge scenario with the growth in the economy, and
industrial waste gas emissions will continue to rise correspond-
ingly in a certain forthcoming years (See Fig. 1).
The income growth degree of some relatively developed regions
in east China has already gone beyond the tipping point value in
 F. Li et al. / Journal of Cleaner Production 276 (2020) 123156
Fig. 1. EKC Simulation of waste gas emissions.
industrial waste gas curve, but the economy stage in most areas,
especially western China, has not overstepped or is still over a great
distance away from the threshold position, as far as industrial
pollution is concerned. The investment-driven model of extensive
growth in the mid-western region has remained and will be the
dominant. What is occurring in various regions of China is essen-
tially similar to the relationship between developed and developing
countries. That is, there is no single nexus that is true for China
looking beyond the emissions, but rather a tipping process which is
at its beginning. China’s regional growth gap remains significant,
with a prominent contradiction between economic geographical
differences and environment protection levels. Compared with the
east China, the central and western regions indicated a “double lag”
in the industrialization and urbanization (See Fig. 2). On the whole,
the central and western regions have entered the heavy chemical
industry stage, where the secondary industry has been becoming
the main engine of economic growth. However, the heavy chemical
industry region has developed into a heavy pollution diffusion
Fig. 2. Situations of various China provincial economies in 2017.
7
zone. A difficult transition period of structural adjustment and
mode change will be ushered in the future. And, the central region
has not yet come out of the state of “collapse”. According to the data
from China Statistical Yearbooks, the GDP in the eastern, central,
western and northeastern regions of China was CNY 48.1 trillion,
19.3 trillion, 18.4 trillion, and 5.7 trillion, respectively. Per capita
GDP in the eastern region is more than CNY 70 thousand and Bei-
jing, Shanghai, Tianjin and Jiangsu all exceed CNY 100 thousand. In
the west China, per capita GDP of most provinces are CNY 30e50
thousand, especially in the northwest China, where Gansu Province
in 2017 was only CNY 28.49 thousand. Urbanization rate of prov-
inces in the east China is basically over 60%, while most western
provinces are still below 50%. The energy consumption per unit of
GDP in the central and western regions, especially the northwest
regions, is significantly higher than that of national level, where 6
western provincial economies exceeded 100 tce/million CNY, but
most regions in the east China are below 50 tce/million CNY.
Structure based on traditional heavy and chemical industry sectors
will continue to be a fundamental characteristic of industries for a
period of time in the future. The extent of over-capacity may even
be intensified as ever in certain industries, and issues related to the
shift from productive regions with regard to the traditional heavy
and chemical industries will be very prominent. Planning and
project under construction in the western regions is still mostly
concentrated in the petrochemical, nonferrous metallurgy and
electric-power industries; the central region features a concentra-
tion of equipment manufacturing, petrochemical, steel, nonferrous
metallurgy, coal and electric-power, building materials and other
basic energy and materials industries. That differs significantly
from several relevant existing studies (Brajer et al., 2011; Diao et al.,
2009; Qin et al., 2016; Yu and Chen, 2012; Zhang et al., 2019), in
accordance with trajectories of China’s environmental pressure.
5. Conclusions
A reconsideration of the environment-economy nexus was
performed, based on the provincial panel data in China during the
1985e2017 period. Firstly, the findings indicate that a long-term
cointegrated relationship exists between the industrial pollution
variables and the economic variables. China economy is not just
8 F. Li et al. / Journal of Cleaner Production 276 (2020) 123156
having a certain environmental “dividend effect”, but mainly faces
a more significant environmental “pressure effect”. Furthermore,
this study contrasts with the overly optimistic research of certain
scholars, who state that China could be on a clearly different path
from the routes of some developed economies in the world, real-
izing the environmental turnaround at low levels of economy and
industrialization. Additionally, environmental input only has
limited effects on reducing the emissions volume and should reach
the past levels of some developed economies in the similar
pollution-economy phase. This EKC study could have significant
consequences for local pollution reduction and global environment
evolution interpretation.
It is difficult to be sufficient to have any significant impact on the
EKC and to implement a thorough cure, only by the single control
factor and single governance model. The overly minor proportion of
environmental investment and its low efficiency has also resulted
in the poor performance of environmental governance. The global
experience can be used as a reference to redefine the statistical
standards and ranges of investment in environmental governance
to improve coupling environmental investment with its effects.
Fundamentally, environmental investment as a proportion of GDP
should be raised significantly to reach the past levels of developed
countries in the same environment-economy phase. It is generally
thought that obvious improvement in environmental quality might
occur only when the environmental investment of a country
amounts to leastways 3%e5% of GDP for the same period (Hong and
Ren, 2018; Liu et al., 2015; Stark and Bruszt, 1998). Observing the
current situations in countries around the world, the environ-
mental investment of developed economies amounts to 2%e3% of
GDP, while in 2017, according to the data from China Environment
Statistical Yearbooks, the environmental investment of China
totaled only 1.15% of GDP, which is even decreasing year by year and
reaches to the lowest value of the most severe smog period in the
past five years.
It is still an intricate and arduous task to effectuate China’s
fundamental environmental amelioration. The present and future
China economy is not just having a certain environmental “divi-
dend effect”, it mainly faces a more significant and persistent
environmental “pressure effect”. Against the new normal economy
backdrop, the two traditionally important growth supports e the
environment dividend of “low expense of natural resources”, and
“little value of environmental goods”, and the demographic divi-
dend of “low-cost labor source” e both have been gradually
shrinking. Therefore, a change in the contradiction between capital
surplus/trade surplus and resource liability/environmental deficit
could be bound to occur. However, the overall inputs in environ-
mental governance is still in a stage of paying past dues, far below
the level needed to maintain further pollution reduction and
mitigate cumulative environmental effects. Moreover, it should be
worthy of noting that under the new normal, the traditional growth
models based on investment and export, and urbanization (the
internal momentum of China’s economic growth) would have been
concerned gravely and negatively, and financial pressure and stress
have also been increasing. And, the phenomenon of the Lewisian
Turning Point has caused a shortage of migrant workers and a rise
in wages, causing cost-push inflation and constrained corporate
profits. The capital pressure at the corporate level has increased as a
result, and to a certain extent, the environmental domain will face a
shortage of investment and difficulties in fund-raising, severely
influencing implementation effects of environmental measures. It
is recommended that national government could establish relevant
incentive policies for diversified sources to spur social capital and
foreign capital to invest in environmental governance, reinforcing
the supervision of pollution sources and emphasizing the gover-
nance of major pollution industries all over the country.
For decades of years, China’s economy overall has been mainly
dependent on the over-development, over-utilization and high
consumption of natural resources and energy, a high intensity of
pollution emissions, and a traditional economic growth with low-
level benefits, to a certain extent. In the future, the degree of dif-
ficulty with regard to transformation will still be relatively high;
particularly under “the new normal”, economic growth pressure
has been intensified, more development bottlenecks have
appeared, and an ensuing pathway dependency demand for
traditional investment driving economy has been increasing
accordingly. To safeguard stable economic growth, it will be diffi-
cult to promptly realize the transformation and upgrade of in-
dustries with heavier pollution and higher resource consumption
while maintaining relatively high economic contributions within
the traditional economic system, and these industries will continue
to contribute to large amounts of pollution emissions for a
considerable period of time. In the future ten years, suffering from
structural adjustment and changes in the development mode of
industries and energy sources would be lingering on in China.
Environmental protection and changes in development and ad-
justments will still be caught in a stalemate.
Overall, the correlation between environment and economy in
China cannot be very different from the path taken by some
developed countries, which contrasts with the claim of certain
scholars that the tipping point can be achieved at lower levels of
economic growth and industrialization. On the contrary, environ-
mental protection level lags behind its economic development
level. In terms of the current economic growth overall, China’s EKC
turning point has not occurred, or the inverted U-shaped curve can
only be realized when the development level reaches that of the
EKC turning point in some developed economies. It cannot be
overly optimistically accessed with regard to China’s current envi-
ronmental situation. Subsequently, for a certain period of time,
particularly during the “China’s 14th and 15th Five-Year Plan”
period, there will be a dilemma with regard to the tradeoff between
economic achievement and natural wealth. It will also be a period
of stalemate in terms of overcoming short-term growth pressure,
realizing long-term development transformation, and solving
conflicts regarding pollution prevention, and it could be a signifi-
cantly difficult and crucial stage, with the largest supply-demand
gap of environment quality as well as the most intense contradic-
tions between resource bottlenecks/environmental restrictions and
the new economic normal. Structural adjustments, fostering of
development, reinforcement of environmental work, and imple-
mentation of green development models should be developed
based on such inherent period-specific characteristics of the
economy. These are all urgent issues to be solved with regard to
China’s development policy. This study has provided a general
environment-economy nexus overview in China, which is among
the most challenging globally within the scales of economy and
population involved. But clearly a more detailed study is needed,
with more data on the new normal economy in the future, such as
more temporal-regional heterogeneity mechanism analysis and
placebo test, especially regarding the environmental effects of both
government management options and the stakeholders’ involve-
ment, and the public options for pollution reduction.
CRediT authorship contribution statement
Fei Li: Conceptualization, Methodology, Software, Investigation,
Writing - original draft, Writing - review & editing, Project
administration. Eran Feitelson: Methodology, Investigation,
Writing - review & editing, Supervision. Yu Li: Data curation,
Validation, Writing - review & editing, Project administration,
Funding acquisition.
 F. Li et al. / Journal of Cleaner Production 276 (2020) 123156
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.
Acknowledgments
This study was supported by the Strategic Priority Research
Program of the Chinese Academy of Sciences (No. XDA20030200),
the Key Research Program of the Innovation Academy for Green
Manufacture, Chinese Academy of Sciences (No. IAGM-2019-A16),
the Science & Technology Basic Resources Investigation Program of
China (No. 2017FY101300), and the Golda Meir Fellowship.
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