Multi-factor productivity growth with natural capital and undesirable output: A measurement for OECD and G20 countries

Abstract

In the background of global warming, worldwide energy and environmental governance had received increasing attention. Measuring environmentally adjusted multi-factor productivity (EAMFP) can highlight the contribution of natural capital to economic development and the negative impact of pollutants on economic development. This paper incorporated natural capital and pollutants to construct a growth accounting framework, and collected input and output data from 51 OECD and G20 countries during 1990–2020. EAMFP of different income levels countries were analyzed, which can more accurately describe the process of sustainable development and is helpful for countries with the same income level to judge their sustainable development process. In addition, the output-pollution elasticity is used to measure the dependence of economic development on emissions of nine pollutants in these countries. Empirical results showed that: (i) Multi-factor productivity (MFP) is higher than EAMFP in 40 countries, indicating that traditional productivity overestimates the quality of economic development and has a negative impact on the adjustment of the sustainable development process. (ii) The governance process is not consistent across countries for different pollutants, but in general the economic growth is less dependent on pollutant emissions in high and upper-middle income level countries than in lower-middle income countries. (iii) The gap between GDP growth and pollution-adjusted GDP growth is the largest for lower-middle income countries, which indicates that current rate of economic growth is achieved at the cost of pollutant emissions. Differentiated policy implications for promoting EAMFP growth for countries with different income levels, such as increase investment in clean energy research and development, raise the entry threshold for pollution-intensive industries, and accelerate industrial structure transformation were proposed.