Re-Examining Regional Total-Factor Water Efficiency and Its Determinants in China: A Parametric Distance Function Approach

Abstract

It is accepted that improving water efficiency is a key task for China in achieving water sustainability, as the knowledge of water efficiency and its determinants can provide critical information for water policy formulation. To this end, this paper presents a parametric frontier approach to analyze water efficiency performance and its influencing factors in one step. The proposed approach first introduces the Shephard water distance function to construct total-factor water efficiency (TFWE) index and then adopts the stochastic frontier analysis (SFA) technique to compute the index and its determinants. A case study of regions in China from 2000 to 2015 is presented. The main findings are summarized as follows: (1) Both the overall China and most of the regions still have room for improvement in water efficiency. SFA and data envelopment analysis (DEA) might lead to different results in benchmarking water efficiency. Moreover, SFA has higher discriminating power than DEA in this regard. (2) There exists significant disparity of water efficiency among the regions of China, and the difference in TFWE takes on a U-shaped evolution trend, which first decreases in a fluctuation way and then increases monotonically. (3) Factors like industrial structure, import and export trade, environmental regulation and urbanization level have a positive impact on water efficiency, while resource endowment and economic level exhibit negative and nonlinear effects, respectively. Finally, several policy recommendations are made to improve water efficiency levels and promote water sustainability.

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