Evaluating Economic and Environmental Performance of the Chinese Industry Sector

Abstract

This study assesses economic and environmental performance in the Chinese industry sector across 30 provinces during the period of 2006-2017. The study relies on a nonparametric framework and we apply a novel decomposition of the overall inefficiency scores into three components of technical, scale and mix inefficiency at the aggregate level by incorporating undesirable outputs. As we rely on by-production technology, industry performance is split into economic and environmental dimensions. Our results show that Chinese industry inefficiency is equally due to economic and environmental performance during 2006-2017, whereas technical and scale inefficiencies are relatively higher for environmental sub-technology (which relates energy to CO 2 emission) if opposed to the economic sub-technology (which relates all the inputs to the economic value added). This implies that Chinese industry still requires improvements in environmental performance. The eastern region shows a relatively low average economic overall inefficiency if compared to other regions, yet its total OI (overall inefficiency) is the highest among the regions. Thus, environmental performance and misallocation of resources constitute the underlying causes of the total inefficiency. Therefore, structural reforms are necessary besides improvements in the production processes in the eastern region. This is important since China has experienced economic growth, but also policy must pay attention to environmental issues and sustainability.Sustainability 2019, 11, 6804 2 of 17 from energy consumption. In light of these two objectives, it is necessary to measure the efficiency of Chinese industry in this context. Instead of evaluating China's economic growth performance from the perspective of traditional efficiency and productivity, this paper takes into account unintended processes such as the generating of CO 2 . This paper employed the by-production model that can examine the generation of desirable output and undesirable output (CO 2 emission) simultaneously. The by-production model relies on two sub-technologies, one defining the production of desirable outputs and the other defining the generation of the undesirable ones (see Section 3.1 for details).Based on a nonparametric framework, we evaluate economic and environmental performance in the Chinese industrial sector among 30 provinces during 2006-2017. Contributions to the literature include identifying the mix and scale effects in Chinese industry at both an aggregate and individual levels and decomposing the overall performance into economic and environmental components by applying this by-production model. Literature ReviewThe increasing concerns on the sustainability of economic activities have induced the need for appropriate analytical tools [2][3][4][5]. Among different methods, DEA (Data Envelopment Analysis) has appeared as a tool capable of analyzing environmental performance in the context of the neo-classical economic theory. Indeed, there have been a number of studies applying DEA for an...

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