Evaluating Green Productivity Gains with the Exponential By-Production Technology: an Analysis of the Chinese Industrial Sector

The conventional convexity assumptions frequently placed on piecewise linear frontiers of production technologies modeled using data envelopment analysis imply non-increasing marginal products. Assuming geometric convexity in the context of the exponential technology represents a more general alternative that imposes no underlying restrictions on the marginal products, while simultaneously reducing the impact of the outlying observations. In this paper, we propose an exponential by-production technology capable of generating the outputs deemed undesirable from the society’s point of view. We subsequently rely on this technology to measure environmental productivity. Our empirical illustration uses data from the Chinese industrial sector, which is both a major energy consumer and polluter. By comparing our findings with the results from a conventional production model we demonstrate that our proposed indicator mitigates the impact of outlying observations when gauging the contributions of inputs and outputs to green growth. Our results suggest that the Chinese industrial sector experienced the annual productivity growth rate of around 0.40% during 1999–2016 and that the green productivity was mostly driven by technological progress. We also demonstrate that technological progress has been a bigger contributor to the growth in industrial output in China’s east than its inland or western regions.