Working Paper Series in Economics and Institutions of Innovation,
Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies

Abstract: This study proposes an alternative methodology for measuring environmentally sensitive productivity growth. The rationale of this methodology is to consider the features of technology appropriately by excluding a spurious technical regress based on the macroeconomic perspective. In order to consider this condition and to develop an alternative index, a directional distance function and the concept of the successive sequential production possibility set are combined. With this combination, the conventional Malmquist-Luenberger productivity index is modified to give the alternative sequential environmentally sensitive productivity index. This proposed index is employed in measuring productivity growth and its decomposed components of OECD countries for the period 1970-2003. We distinguish two main empirical findings. First, even though the components of the conventional Malmquist-Luenberger productivity index and the proposed index are different, the developments of productivity are similar. Second, unlike in previous studies, the efficiency change is the main contributor to the earlier study period, whereas the effect of technical change has prevailed over time.

Keywords: efficiency change; environmentally sensitive; productivity growth index; directional distance function; Malmquist-Luenberger; productivity index; productivity; sequential production; possibility set; technical change

JEL-codes: D24; D57; D61

36 pages, June 4, 2009

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