Energy distribution and economic growth: an empirical test for China

In this paper we consider whether economic growth in China could be constrained by the physical development of the energy distribution network. Specifically, we structurally test the network theory of electricity distribution of Dalgaard and Strulik (2011) using city level data for China. In their paper they argue that the relationship between the size of the economy, measured by capital per capita, and electricity consumption per capita is governed by a simple power law with capital having an exponent bounded between ½ and ¾ depending on the efficiency of the network. We use data for 224 cities in China between 2002 and 2007 to observe whether structural estimates match those of Dalgaard and Strulik (2011) for 50 US states where they find the exponent in the power law connecting capital with electricity to be 2/3. Our results provide an estimate of the power law component to a little higher than the 2/3 found for the US which provides broad support for the model. When we look at different time periods we observe what appears to be a fall in the efficiency of the energy distribution network towards the end of our period.