Environmentally sensitive productivity growth: A global analysis using Malmquist-Luenberger index

We examine conventional and environmentally sensitive total factor productivity (TFP) in 41 developed and developing countries over the period of 1971 to 1992. Due to the non-availability of reliable input and CO2 emissions price data, the study uses directional distance function to derive Malmquist-Luenberger (ML) productivity index. The index allows us to decompose the TFP into measures of technical and efficiency changes. DEA is used to compute the directional distance functions. We find that TFP index value is not different when we account for the CO2 emissions relative to the situation when they are freely disposable. But for the components of TFP change: technical and efficiency changes, the null hypothesis of whether the indexes are the same under two different scenarios cannot be accepted. Issues of catch-up and convergence, or in some cases possible divergence, in productivity are examined within a global framework. The paper also studies the impact of openness on conventional and environmentally sensitive measures of productivity.