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Total Factor Productivity Growth when Factors of Production Generate Environmental Externalities

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  • Vouvaki, Dimitra
  • Xepapadeas, Anastasios

Abstract

Total factor productivity growth (TFPG) has been traditionally associated with technological change. We show that when a factor of production, such as energy, generates an environmental externality in the form of CO2 emissions which is not internalized because of lack of environmental policy, then TFPG estimates could be biased. This is because the contribution of environment as a factor of production is not accounted for in the growth accounting framework. Empirical estimates confirm this hypothesis and suggest that part of what is regarded as technology’s contribution to growth could be attributed to the use of environment in output production.

Suggested Citation

  • Vouvaki, Dimitra & Xepapadeas, Anastasios, 2009. "Total Factor Productivity Growth when Factors of Production Generate Environmental Externalities," Sustainable Development Papers 50405, Fondazione Eni Enrico Mattei (FEEM).
    • Handle: RePEc:ags:feemdp:50405
    DOI: 10.22004/ag.econ.50405
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    1. Barro, Robert J, 1999. "Notes on Growth Accounting," Journal of Economic Growth, Springer, vol. 4(2), pages 119-137, June.
    2. Scott L. Baier & Gerald P. Dwyer & Robert Tamura, 2006. "How Important are Capital and Total Factor Productivity for Economic Growth?," Economic Inquiry, Western Economic Association International, vol. 44(1), pages 23-49, January.
    3. Dasgupta, Partha & Mäler, Karl-Göran, 2000. "Net national product, wealth, and social well-being," Environment and Development Economics, Cambridge University Press, vol. 5(1), pages 69-93, February.
    4. Griffin, James M, 1981. "Engineering and Econometric Interpretations of Energy-Capital Complementarity: Comment," American Economic Review, American Economic Association, vol. 71(5), pages 1100-1104, December.
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    Cited by:

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    2. Giulio Cainelli & Massimiliano Mazzanti & Roberto Zoboli, 2013. "Environmental performance, manufacturing sectors and firm growth: structural factors and dynamic relationships," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 15(4), pages 367-387, October.
    3. McGrath, Luke & Hynes, Stephen & McHale, John, 2019. "Augmenting the World Bank's estimates: Ireland's genuine savings through boom and bust," Ecological Economics, Elsevier, vol. 165(C), pages 1-1.
    4. Robi Kurniawan & Shunsuke Managi, 2019. "Linking Wealth and Productivity of Natural Capital for 140 Countries Between 1990 and 2014," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 141(1), pages 443-462, January.
    5. Joan Canton & Ariane Labat & Anton Roodhuijzen, 2010. "An indicator-based assessment framework to identify country-specific challenges towards greener grow," European Economy - Economic Papers 2008 - 2015 401, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    6. Masayuki Sato & Kenta Tanaka & Shunsuke Managi, 2018. "Inclusive wealth, total factor productivity, and sustainability: an empirical analysis," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 20(4), pages 741-757, October.
    7. Paul E. Brockway & Matthew K. Heun & João Santos & John R. Barrett, 2017. "Energy-Extended CES Aggregate Production: Current Aspects of Their Specification and Econometric Estimation," Energies, MDPI, vol. 10(2), pages 1-23, February.
    8. Curran, Michael & Kiteme, Boniface & Wünscher, Tobias & Koellner, Thomas & Hellweg, Stefanie, 2016. "Pay the farmer, or buy the land?—Cost-effectiveness of payments for ecosystem services versus land purchases or easements in Central Kenya," Ecological Economics, Elsevier, vol. 127(C), pages 59-67.
    9. Matthew K. Heun & João Santos & Paul E. Brockway & Randall Pruim & Tiago Domingos & Marco Sakai, 2017. "From Theory to Econometrics to Energy Policy: Cautionary Tales for Policymaking Using Aggregate Production Functions," Energies, MDPI, vol. 10(2), pages 1-44, February.
    10. Martin de Wit & Matthew Kuperus Heun & Douglas J Crookes, 2013. "An overview of salient factors, relationships and values to support integrated energy-economic systems dynamic modelling," Working Papers 02/2013, Stellenbosch University, Department of Economics.
    11. Neophyta Empora & Theofanis Mamuneas, 2011. "The Effect of Emissions on U.S. State Total Factor Productivity Growth," Review of Economic Analysis, Digital Initiatives at the University of Waterloo Library, vol. 3(2), pages 149-172, October.
    12. Pantelis Kalaitzidakis & Theofanis P. Mamuneas & Thanasis Stengos, 2018. "Greenhouse Emissions and Productivity Growth," JRFM, MDPI, vol. 11(3), pages 1-14, July.
    13. Neophyta Empora, 2017. "Air pollution spillovers and U.S. state productivity growth," University of Cyprus Working Papers in Economics 06-2017, University of Cyprus Department of Economics.
    14. Tugcu, Can Tansel & Tiwari, Aviral Kumar, 2016. "Does renewable and/or non-renewable energy consumption matter for total factor productivity (TFP) growth? Evidence from the BRICS," Renewable and Sustainable Energy Reviews, Elsevier, vol. 65(C), pages 610-616.

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    More about this item

    Keywords

    Environmental Economics and Policy;

    JEL classification:

    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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