Study of industrial path to reduce the energy density based on divisia decomposition

Divisia decomposition is an important method to study the changes of indices. Based on the sample data of major industries in China and other 11 OECD countries from 1997 to 2005, this paper uses logarithmic mean Divisia index decomposition approach for analysing empirically the characteristics of energy density changes in these countries. The results of empirical analysis explain the main factors that promote the changes of energy density and based on this, this paper carries on the horizontal comparison with the OECD countries on six industries which displayed most remarkable output effect and density effect in China. By analyzing the results, the paper determines the potential of china to further reduce the energy density and determines its best industrial path.