Material balance and correction for the measurement of green total factor productivity growth

Abstract

In the measurement of the growth of green total factor productivity (GTFP), existing studies firstly need to measure environmental efficiency, where undesirable outputs are estimated based on the quantity of inputs using the material balance method. The material balance method not only makes it possible to derive undesirable outputs but also implies a constraint. However, existing studies have not considered this potential constraint when measuring environmental efficiency, which may result in GTFP growth measurements that violate the material balance principle. This paper improves the measurement of the growth rate of GTFP by incorporating material balance constraints into the environmental efficiency measurement method. Based on green cost function, a new method which is consistent with material balance constraints for measuring the GTFP growth rate is constructed. Empirical measurement of the growth of GTFP in power generation enterprises from 2009 to 2014 reveals that, without considering material balance constraints, the traditional GTFP growth measurement results do not align with the trends in the unit energy consumption of power generation enterprises. This discrepancy is corrected when material balance constraints are incorporated. The GTFP growth results based on the environmental cost function indicate that power generation enterprises focus more on improving cost efficiency rather than merely enhancing technical efficiency.