Environmental total factor productivity of agriculture in South Asia: A generalized decomposition of Luenberger-Hicks-Moorsteen productivity indicator

Abstract

The agricultural total factor productivity (TFP) assessment is essential for providing intuition regarding factors involving productivity change. Integration of environmental aspects together with productive efficiency provides identification of factors for agricultural growth and environmental performance which anticipates foundation for the sustainable agricultural development. In a non-parametric framework, this paper establishes a modified directional by-production model to ensure the link between production and pollution-generating sub-technologies which offers more refined economic interpretations thereby proposing a unique shadow value of the pollution-generating inputs for the two sub-technologies. Further, a non-oriented generalized Luenberger-Hicks-Moorsteen (LHM) productivity indicator is adapted for the refined by-production model to measure the environmental TFP of agriculture sector in South Asia during 2000–2019. The environmental LHM-TFP decomposition accumulates both input and output changes yielding three mutually exclusive components, i.e. technical efficiency change, technological progress, and scale efficiency change. Moreover, the spatial evolution of agricultural carbon shadow price has been accessed during the study period. The policy implications suggest effective ways to improve the environmental TFP of agriculture in South Asia by strengthening technical efficiency advancements and optimizing economies of scale, promoting the coordinated development among countries for sustainable agricultural practices, and encouraging cleaner agricultural production for emissions reduction.