Factor allocation efficiency of environmental protection industry in China—Based on the perspective of micro enterprises

Abstract

The Environmental Protection Industry (EPI) has expanded tremendously in response to rising environmental awareness and governmental assistance. EPI development has been hampered by the disordered and unbalanced allocation of production factors caused by the complex and diverse industry mix. In this study, a micro perspective is adopted to dissect the EPI into three departments: technology, manufacturing, and management. A measuring model for determining the misallocation of factors in the EPI is constructed using a three-department Cobb-Douglas production function. The model assesses the effectiveness of factor allocation in China's national and regional EPI while taking into account provincial industrial structures. The findings demonstrate disparate performances between various factors and departments and highlight noteworthy variances in the effectiveness of factor allocation within China's EPI. In particular, capital misallocation is far worse than labor misallocation, with manufacturing misallocation being noticeably worse than other departments. The excessive concentration of factors within the manufacturing department and the severe lack of inputs in the other two departments are mostly to blame for Central and Northwest China's low factor allocation efficiency. Additionally, capital tends to cluster inside the manufacturing department, while labor tends to move toward dominant departments. Finally, relevant policy suggestions are made based on the empirical findings.