Decomposition of environmental total factor productivity growth using hyperbolic distance functions: A panel data analysis for China

- Extend hyperbolic distance functions to analyze energy and environmental efficiency
- Decompose environmental TFP growth into efficiency change and technical change
- Derive a relationship between ETFPC and TFPC
- The environmental TFP growth is almost due to innovation
- Contribution of the environmental technical efficiency increased after ECER program

This paper extends recently developed parametric hyperbolic distance functions to the analysis of energy and environmental efficiency for a panel data of 29 provinces in China from 1995-2010, and then decomposes the growth of environmental total factor productivity into two component measures, namely, environmental efficiency change and environmental technical change based on the estimated hyperbolic distance functions. We find that there exists a great dispersion in environmental efficiencies across provinces and regions, and the growth of environmental productivity is almost due to the environmental technical change rather than the environmental efficiency change. However, the contribution of the environmental efficiency change has recently become increasingly positive and thus drives up the growth of environmental productivity from slowdown.