Green productivity evolution under non-convex environmental technology

Abstract

Most of empirical studies assume convex production technology to analyze productivity growth at the aggregate level. However, convexity assumption implies benchmarking against production plans that are not empirically observed. Unlike previous studies, we adopt a non-convex approach based on observed input–output combinations, which requires minimal assumptions in terms of production technology. Incorporating energy and carbon emissions into the production function, this paper investigates green growth and its driving forces among 39 European countries over 1991–2019. A by-production technology is applied alongside the environmental Luenberger-Hicks-Moorsteen (LHM) productivity indicator and directional distance functions. The results show that the production technology has been expanding (i.e., technical progress), whereas scale inefficiency led to the negative green total factor productivity (TFP) growth in Europe. At the group level, green TFP in OECD countries tends to increase, whereas a sharp decline is observed for non-OECD countries. Furthermore, we note that human capital, R&D intensity, energy consumption structure, and urbanization level all have significant positive impacts on green TFP growth in Europe, especially for non-OECD countries. The corresponding policy implications are derived to promote regional cooperation and technology sharing.