An Assessment of Eco-Efficiency and its Determinants: Evidence from Macroeconomic Data

The analysis of innovation, natural resource consumption, and eco-efficiency is widely discussed in firm-level studies. However, there is little literature on the assessment of eco-efficiency and its determinants in the macroeconomic framework. This study focuses on the empirical estimation of the eco-efficiency index with and without undesirable output at the aggregate level using a non-radial, non-oriented slack-based model (SBM) with the help of data envelopment analysis (DEA). SBM-DEA reveals that the level of eco-efficiency falls by incorporating undesirable output. The system generalised method of moments (GMM) applied to the panel data from 116 developed and developing countries for the period 2010–2019 to identify the determinants of eco-efficiency. The findings of system GMM show that innovation has a dynamic impact on eco-efficiency in developed and developing countries compared to natural resource consumption which adversely impacts it. The study also confirms exports and foreign direct investment (FDI) as an integral determinant of eco-efficiency. The findings confirm the ecological modernization theory which assures improvement in environmental quality due to innovation. The findings suggest that innovation and conservation of natural resources promote eco-efficiency in developed and developing countries.