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An environmental Luenberger-Hicks-Moorsteen. Total Factor Productivityindicator for OECD Countries

Tomas Baležentis and Zhiyang Shen

No 2017-EQM-02, Working Papers from IESEG School of Management

Abstract: In this paper, we propose a novel environmental Luenberger-Hicks-Moorsteen (LHM) Total Factor Productivity indicator and its decomposition that incorporates a negative externality into the measurement of economic performance. Special cases of a generalized environmental directional distance function are involved in the definition of this LHM indicator and the proposed decomposition. We suggest applying the weak disposability non-parametric environmental technology to implement the proposed decomposition. This LHM indicator decomposes into the three terms representing technical change, technical inefficiency change, and scale inefficiency change. The changes in the environmental TFP for OECD countries are then estimated by applying the data set covering the years from 1990 to 2014. We then show the differences of the proposed framework for the decomposition of the LHM indicator if opposed to some existing ones. The results suggest the proposed approach diverges from the traditional strong disposability non-parametric approach in terms of the cumulative environmental TFP.

Keywords: Total Factor Productivity; Environmental TFP; Luenberger-Hicks-Moorsteen indicator; Weak disposability (search for similar items in EconPapers)
Pages: 28 pages
Date: 2017-05
New Economics Papers: this item is included in nep-eff and nep-env
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