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Total Factor Productivity Growth when Factors of Production Generate Environmental Externalities


  • Vouvaki, Dimitra
  • XEPAPADEAS, Anastasios


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, 2008. "Total Factor Productivity Growth when Factors of Production Generate Environmental Externalities," MPRA Paper 10237, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:10237

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    References listed on IDEAS

    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 & M Ler, Karl-G Ran, 2000. "Net national product, wealth, and social well-being," Environment and Development Economics, Cambridge University Press, vol. 5(01), 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:

    1. 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.
    2. Neophyta Empora & Theofanis Mamuneas, 2011. "The Effect of Emissions on U.S. State Total Factor Productivity Growth," Review of Economic Analysis, Rimini Centre for Economic Analysis, vol. 3(2), pages 149-172, October.
    3. 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.
    4. 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.

    More about this item


    Total Factor Productivity; Sources of Growth; Environmental Externalities; Energy; Environmental 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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