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Capacity utilization in a generalized Malmquist index including environmental factors. A decomposition analysis

Productivity measures ignoring environmental effects may give misleading information on total productivity growth. Further, business cycles in the form of capacity utilization may also significantly influence productivity measures. In this paper, we develop an overall Malmquist productivity index and decompose changing efficiency rates into a contribution from environmental factors, capacity utilization and other traditional factors. The capacity utilization element is a contribution to the literature in that it takes into account the capacity for producing negative externalities. We decompose the frontier movements into a contribution from traditional factors and environmental factors and apply the model to a micro data set for two Norwegian industries: the pulp and paper industry and the inorganic chemistry industry. We find frontier improvements over the period included in the analysis, while the distance to the frontier has increased. Capacity utilization increased over the period and contributed to an average approach to the frontier, while environmental indicators contributed negatively. Analysis of the two industries indicates that differences between the traditional and revised efficiency measures changes are ambiguous, except from the capacity utilization element. This indicates that the environment loses when business cycles improve.

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Paper provided by Research Department of Statistics Norway in its series Discussion Papers with number 473.

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Date of creation: Sep 2006
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Handle: RePEc:ssb:dispap:473
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  1. DE BORGER, Bruno & KERSTENS, Kristiaan, . "The Malmquist productivity index and plant capacity utilisation," Working Papers 2000020, University of Antwerp, Faculty of Applied Economics.
  2. Reinhard, Stijn & Knox Lovell, C. A. & Thijssen, Geert J., 2000. "Environmental efficiency with multiple environmentally detrimental variables; estimated with SFA and DEA," European Journal of Operational Research, Elsevier, vol. 121(2), pages 287-303, March.
  3. Hailu, Atakelty & Veeman, Terrence S., 2001. "Alternative methods for environmentally adjusted productivity analysis," Agricultural Economics, Blackwell, vol. 25(2-3), pages 211-218, September.
  4. Annegrete Bruvoll & Torstein Bye & Jan Larsson & Kjetil Telle, 2003. "Technological changes in the pulp and paper industry and the role of uniform versus selective environmental policy," Discussion Papers 357, Research Department of Statistics Norway.
  5. Fare, Rolf & Grosskopf, Shawna & Kokkelenberg, Edward C, 1989. "Measuring Plant Capacity, Utilization and Technical Change: A Nonparametric Approach," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(3), pages 655-66, August.
  6. Pittman, Russell W, 1983. "Multilateral Productivity Comparisons with Undesirable Outputs," Economic Journal, Royal Economic Society, vol. 93(372), pages 883-91, December.
  7. Fare, Rolf, et al, 1993. "Derivation of Shadow Prices for Undesirable Outputs: A Distance Function Approach," The Review of Economics and Statistics, MIT Press, vol. 75(2), pages 374-80, May.
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