Efficiency and its influencing factors of urban water sector in China and major OECD countries

Abstract

Improving the efficiency and productivity of the water supply sector is related to the mitigation of a country's water resources crisis and the governance of the water ecological environment. This paper employs a sequential data envelopment analysis (DEA) approach to examine the comparative efficiency of China's urban water industry by using the country-level data from 1998 to 2017, and then attempts to make a cross-country comparison of the technology gap in the urban water industry between China and major OECD countries. The results show that China's urban water sector performance is improving despite falling short of urban water development in the major OECD. The gap between the performance of China's urban water sector and that of major OECD countries is narrowing. Efficiency improvement has become the main driver of productivity growth of urban water sector in both China and the major OECD countries. Besides, the reduction of capital deepening in the water industry and the easing of water stress could improve the water industry's performance in efficiency. While increased foreign direct investment instead reduces the water industry's efficiency, increased R&D expenditure can improve efficiency, but both are not statistically significant. These findings indicate that compared to major OECD countries, China's urban water industry should strengthen the reform change as soon as possible from asset-heavy to asset-light operation and service, and then improve the water conservation system.