The Role of Environmental Factors in Growth Accounting: A Nonparametric Analysis

This paper explores a relatively new methodology, the directional distance function method, to analyze productivity growth. The method explicitly evaluates the role undesirable outputs of the economy, such as carbon dioxide and other green-house gases, have on the frontier production process which we specify as a piece-wise linear and convex boundary function. We decompose productivity growth into efficiency change (catching up) and technology change (innovation). We test the statistical significance of the estimates using recently developed bootstrap methods. We also explore implications for growth of total factor productivity in the OECD and Asian economies.