An environmental Luenberger–Hicks–Moorsteen total factor productivity indicator: empirical analysis considering undesirable outputs either as inputs or outputs, and attention for infeasibilities

The measurement of economic growth is important for identifying the development patterns followed by different economies. In the light of sustainable development goals, one needs to be able to track the green growth, i.e., they must the adjusted in regard to generation of undesirable outputs that are usually non-marketed. This contribution puts forward an empirical case of the economically developed countries grouped in OECD and measures their total factor productivity (TFP) growth. This is done by exploiting a novel formulation of the Luenberger–Hicks–Moorsteen (LHM) TFP indicator based on the Kuosmanen (Am J Agric Econ 87(4):1077–1082, 2005) proposal. We argue that undesirable outputs must be regarded as special outputs but not inputs in both the production technology and TFP measure. We compare two models: one that considers undesirable outputs as special outputs in the directional distance functions of TFP indicator following Kuosmanen (Am J Agric Econ 87(4):1077–1082, 2005), and another that considers undesirable outputs as inputs following Abad (J Environ Manage 161:325–334, 2015). This proposed approach assumes that input- and output-orientations are taken, with the latter handling both desirable and undesirable outputs simultaneously. Still, we compare our results with those based on the other more conventional frameworks. The empirical case deals with OECD country-level data for 1991–2019. The results suggest that there exist substantial differences in the resulting measures of the TFP growth depending on the distance functions used in the calculation of the LHM indicator.