The structural break and elasticity of coal demand in China: empirical findings from 1980-2006

Abstract

Coal is the principal primary energy source in China. Research on coal demand is vital for informing China's economic development. In this paper, the theoretical structural break of coal demand was tested using annual time series data from 1980 to 2006. Results indicate that coal demand underwent an intercept structural break during the period 1997-2000 (from −0.536 breaking to −0.702). Then long- and short-term relationships between coal demand, income variability, coal price and oil price were explored using a time series modelling technique. Simultaneously, the elasticities of coal demand were tested with respect to income, coal price and oil price. Evidence suggests that the long-run elasticities are 0.560, −1.161 and 0.733 respectively; with short-term elasticities being 0.716, −0.067 and 0.017. The conclusion is that there is an integrated relationship between coal demand, income variability, coal price and oil price. China's coal demand will be influenced by the relationship in future. However, the influence from the change in coal price and oil price in the short term are −0.067 and 0.017, and are insignificant from zero in statistics. This may predicate the unreasonableness existing in the mechanism of China's primary energy pricing. That is, the price of primary energy cannot effectively develop the function of allocating resources.