Estimating the environmental efficiency, productivity, and shadow price of carbon dioxide emissions for the Belt and Road Initiative countries

Abstract

This study investigates the environmental efficiency, productivity, and shadow price of carbon dioxide (CO2) emissions of 52 Belt and Road Initiative (BRI) countries for 2005–2016. We consider the case of three inputs (Energy, Labor and Capital), one desirable output (GDP), and one undesirable output (CO2 emissions). The contribution of this paper is that we use the endogenous directional distance function (DDF) to construct environmental efficiency and sequential productivity indicators. The benefit of this approach is that we can both avoid the influence of arbitrary mapping rules and capture the progressive nature of the technology. The results show that the technical efficiency of Eastern Asia increased continuously during the sample period, while those of the other regions did not show a significant trend, indicating that Eastern Asia was catching up with the frontier faster than the rest of the regions. The average shadow prices of CO2 emissions for all the BRI countries increased steadily over the sample period, but the shadow prices of Eastern Europe and Central Asia are much higher than those of the other regions. The average productivity of the BRI countries improved for most periods, mainly because of technological progress. Moreover, the technical changes for the six regions during the sample period are all positive, meaning that technology progress is universal for the BRI countries, especially for those in Eastern Asia. The results of this study have important policy implications for carbon reduction in the BRI countries.