New Horizons in Environmental Economics series
INTRODUCTION The principal focus of this chapter is to measure productivity change using a number of approaches, including total factor productivity (TFP), and technological/efficiency change for environmental (that is, nonmarket) outputs in China, using unique province-level secondary industry data over the 1992–2003 period. In addition, the analysis measures market productivity following the traditional productivity literature. It is important to note that the regulations requiring more stringent pollution abatement do not necessarily change environmental productivity. This is because the linear expansion of pollution abatement costs and pollution reduction does not necessarily affect pollution reduction per abatement cost. Whether pollution abatement technologies are used most efficiently is crucial in the analysis of environmental management because it influences, at least in part, the cost of alternative production and pollution abatement technologies (for example, Jaffe et al., 2003). The role of environmental policy in encouraging or discouraging productivity growth is also well documented in the theoretical literature. As a result of this policy, two possibilities are likely. First, abatement pressures may stimulate technological innovations that reduce the actual cost of compliance below those originally estimated (for example, ibid.). Second, firms may be reluctant to innovate if they believe that regulators will respond by ‘ratcheting up’ standards (for example, McCain, 1978). In addition to the changes in environmental regulations and technology, management levels also influence environmental productivity. Therefore, whether the productivity and technological frontier expands over time is an empirical question.1 41 42 Chinese economic development and the environment 2 MODEL Basic Concept Productivity...
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