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Carbon Emissions and Cost Efficiency in Manufacturing Firms: Evidence from Digital Transformation, Energy Efficiency, and Green Innovation Perspectives

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  • yeboah, samuel

Abstract

This study reviews the relationship between carbon emissions and cost efficiency in manufacturing firms within the broader context of sustainable industrial transformation and increasing environmental pressures. The review synthesises contemporary theoretical and empirical literature published between 2020 and 2026, with particular emphasis on Scopus-indexed and Q1-ranked journal articles. The study examines the interaction between carbon emissions, operational efficiency, digital transformation, energy efficiency, and green innovation within manufacturing systems. The findings suggest that improvements in energy efficiency, technological innovation, and digital transformation can significantly reduce carbon emissions while simultaneously enhancing cost efficiency, productivity, and overall firm performance. Nevertheless, the empirical evidence remains mixed and highly context-dependent. Whereas several studies report substantial efficiency gains associated with low-carbon manufacturing practices and digital integration, others identify weak, conditional, or heterogeneous effects influenced by institutional quality, industrial structure, technological readiness, regulatory environments, and firm-specific capabilities. The review further reveals a strong geographical concentration within the literature, particularly the dominance of China-based manufacturing studies, with comparatively limited empirical evidence from African economies and other emerging industrial contexts. Moreover, most existing studies employ indirect indicators such as total factor productivity, ESG performance, or innovation output rather than direct measures of cost efficiency derived from frontier-based techniques such as Data Envelopment Analysis (DEA) and Stochastic Frontier Analysis (SFA). The originality of this study lies in its integrated synthesis of carbon emissions and cost efficiency within a unified manufacturing framework, an area that remains fragmented in the existing literature. The study advances an innovative perspective by conceptualising environmental sustainability, digital transformation, and operational cost efficiency as interconnected dimensions of industrial competitiveness rather than isolated constructs. Its contribution to knowledge derives from identifying major theoretical inconsistencies, methodological limitations, and contextual gaps that constrain current understanding, particularly the limited evidence from emerging economies and the inadequate application of direct cost efficiency measurement approaches in manufacturing research.

Suggested Citation

  • yeboah, samuel, 2026. "Carbon Emissions and Cost Efficiency in Manufacturing Firms: Evidence from Digital Transformation, Energy Efficiency, and Green Innovation Perspectives," MPRA Paper 129216, University Library of Munich, Germany, revised 15 Apr 2026.
    • Handle: RePEc:pra:mprapa:129216
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    References listed on IDEAS

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    JEL classification:

    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • 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

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