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Productivity Measurement with Natural Capital and Bad Outputs

Author

Listed:
  • Nicola Brandt

    (OECD)

  • Paul Schreyer

    (OECD)

  • Vera Zipperer

    (OECD)

Abstract

This paper presents a productivity growth measure that explicitly accounts for natural capital as an input factor and for undesirable goods, or “bads”, as an output of the production process. The discussion focuses on the extension of productivity measurement for bad outputs and estimates of their shadow prices, while the inclusion of natural capital is discussed in more depth in a companion paper. As bad outputs are the target of environmental policies, a productivity measure that does not take bad outputs into account will underestimate productivity growth, whenever countries devote some inputs to reducing bad outputs, thus improving the environmental impact of their production processes, rather than to increasing the production of goods and services. An adjusted productivity measures is needed in an analysis of the effect of bad outputs on productivity growth as otherwise the effectiveness of environmental policies in promoting production processes that make more efficient use of the environment will be wrongly assessed. Results suggest that the adjustment of the traditional productivity growth measure for bad outputs is small. While this partly hinges on the fact, that due to a lack of more comprehensive data, only a limited set of bad outputs are considered in this paper, namely CO2, SOX and NOX emissions, the relatively small adjustment of the traditional productivity growth measure is good news for two reasons. First, it implies that ignoring the bad outputs considered in this paper results in a relatively small bias of productivity measurement, and thus analysis based on traditional measures should be relatively reliable in this regard. Second, it also implies that the acceleration in productivity growth that would help to substantially reduce the bad outputs considered in this paper, without reducing output growth, should be possible to achieve. Une mesure de productivité avec capital naturel et des produits indésirables Ce rapport présente une mesure de croissance de la productivité qui inclut explicitement le capital naturel et des produits non-désirables, ou des « bads », comme outputs du processus de production. La discussion se focalise sur l’extension de la mesure de croissance de productivité qui provient des « bad outputs » et sur l’estimation des leurs prix virtuels, alors que l’inclusion du capital naturel est discuté plus en détail dans un autre papier. Une mesure de productivité qui ne prend pas en compte des produits non-désirés est susceptible de sous-estimer la croissance de productivité chaque fois qu’un pays dédie quelques entrants à la réduction de ces produits non-désirables, pour ainsi améliorer l’impact environnemental de ses processus de production, plutôt qu’à la croissance de la production des biens (désirables) et des services. Comme les produits non-désirables sont la cible de la politique environnementale, une analyse de comment celle-ci impacte sur la croissance de productivité requiert une mesure qui inclut les « bad outputs «, comme celle présentée dans ce papier. Sinon, il y a peu d’espoir d’obtenir une évaluation correcte de l’impact des politiques environnementales sur la promotion des processus de production qui utilisent l’environnement avec plus d’efficacité. Les résultats présentés dans ce papier suggèrent que l’ajustement de la mesure traditionnelle de croissance de productivité pour des produits non-désirables est faible. Ceci est en partie dû au fait que, faute d’avoir accès à des donnés plus complètes, les produits non-désirables inclut dans ce papier se limitent aux émissions des dioxydes de carbon (CO2), des oxydes de soufre (SOX) et des oxydes d’azote (NOX). Néanmoins, l’ajustement relativement faible de la mesure de croissance de productivité est une bonne nouvelle pour deux raisons. Premièrement, ceci implique qu’ignorer les produits non-désirables considérés dans ce papier mène à un biais de la mesure de croissance de productivité relativement faible et donc les analyses basées sur des mesures traditionnelles de croissance de productivité devraient être assez fiables. Deuxièmement, ce résultat implique aussi que l’accélération de la croissance de productivité qui contribuerait à réduire substantiellement les produits non-désirables considérés dans ce papier, sans pour autant réduire la croissance de la production des biens et des services, devrait être atteignable.

Suggested Citation

  • Nicola Brandt & Paul Schreyer & Vera Zipperer, 2014. "Productivity Measurement with Natural Capital and Bad Outputs," OECD Economics Department Working Papers 1154, OECD Publishing.
  • Handle: RePEc:oec:ecoaaa:1154-en
    DOI: 10.1787/5jz0wh5t0ztd-en
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    Cited by:

    1. R. De Santis & P. Esposito & C. Jona Lasinio, 2021. "Environmental regulation and productivity growth: Main policy challenges," International Economics, CEPII research center, issue 165, pages 264-277.
    2. Paul Schreyer, 2021. "Framing Measurement Beyond GDP," CEPA Working Papers Series WP172021, School of Economics, University of Queensland, Australia.
    3. Cárdenas Rodríguez, Miguel & Haščič, Ivan & Souchier, Martin, 2018. "Environmentally Adjusted Multifactor Productivity: Methodology and Empirical Results for OECD and G20 Countries," Ecological Economics, Elsevier, vol. 153(C), pages 147-160.
    4. Joshi, Shruti & Nath, Siddhartha & Ranjan, Abhishek, 2023. "Green Total Factor Productivity for India: Some Recent Estimates and Policy Directions," MPRA Paper 117717, University Library of Munich, Germany.
    5. Clarence Tolliver & Hidemichi Fujii & Alexander Ryota Keeley & Shunsuke Managi, 2021. "Green Innovation and Finance in Asia," Asian Economic Policy Review, Japan Center for Economic Research, vol. 16(1), pages 67-87, January.
    6. Matthew Agarwala & Josh Martin, 2022. "Environmentally-adjusted productivity measures for the UK," Working Papers 028, The Productivity Institute.
    7. 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.
    8. Antonietti, Roberto & Marzucchi, Alberto, 2014. "Green tangible investment strategies and export performance: A firm-level investigation," Ecological Economics, Elsevier, vol. 108(C), pages 150-161.
    9. Getu Hailu, 2023. "Reflections on technological progress in the agri‐food industry: Past, present, and future," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 71(1), pages 119-141, March.
    10. Hua, Cheng & Wang, Ke, 2023. "Multi-factor productivity growth with natural capital and undesirable output: A measurement for OECD and G20 countries," Innovation and Green Development, Elsevier, vol. 2(2).

    More about this item

    Keywords

    carbon dioxide emissions; emission shadow prices; green productivity; multi-factor productivity; natural capital stock; nitrogen oxide emissions; prix sous-jacents des émissions; productivité globale des facteurs; productivité multifacteurs; productivité verte; stock de capital naturel; sulphur oxide emissions; total factor productivity; émissions des oxydes d’azote.; émissions dioxydes de carbon; émissions oxydes de soufre;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • Q3 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling

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