Evaluation and determinants of total unified efficiency of China's manufacturing sector under the carbon neutrality target

Abstract

China has one of the largest manufacturing industries in the world. At the same time, the carbon emissions induced by China's manufacturing production pose a severe threat to the environment. With China recently setting the carbon neutrality target, the manufacturing industry faces more urgent pressure to reduce emissions. By adopting the data envelopment analysis, this paper first evaluates the total-factor unified efficiency of China's manufacturing industry at regional and sectoral levels. Then, the panel Tobit model is used to examine the determinants of the efficiency level of China's manufacturing industry. Further, this paper utilizes the economic importance indicator to rank the importance of each factor. The results show regional and sectoral efficiency heterogeneity in China's manufacturing industry. The mid and western China had a slower efficiency growth than the coastal cohort. In addition, the light manufacturing industry showed lower efficiency than the heavy manufacturing industry. Labor quality, industrial agglomeration, and environmental regulation can positively impact efficiency. Surprisingly, our results show that R&D investment and openness harm the manufacturing industry's efficiency. The future policy design should focus on cultivating specialized talent, encouraging point-to-point manufacturing agglomeration, and unifying the emission mandate across the nation. Meanwhile, China should be more cautious of the emissions from foreign-funded manufacturing enterprises and set emission standards on exports of manufactured goods.