Determinants of environmental efficiency and sources of productivity change in the manufacturing sector: A comparative analysis between Europe and Asia

Abstract

The paper measures environmental efficiency and productivity change to then carry out a decomposition analysis of an environmental efficiency index and a productivity change index. The paper includes a novel comparative assessment to determine the drivers of environmental efficiency and the sources of productivity change of the manufacturing sector in Europe, Asia and the whole world. We explore the capability to convert in an environmentally efficient way, selected inputs into desirable and undesirable outputs. Our estimation results of environmental efficiency confirm that Europe is ahead the world's average. Our analysis shows, however, a slowdown of Europe compared with the productivity growth of Asia. The latter shows a better performance in management capabilities, optimal resource allocation, and economies of scale. The analysis carried out in a second stage using the dynamic effects of the generalized method of moments also shows that the annual growth rate of manufacturing value added and manufacturing exports positively influence the level of environmental efficiency in both Asia and Europe. Therefore, the internationalization and extroversion of manufacturing can be crucial for sustainable development in Europe and Asia.