Analyzing the Tradeoff Between the Economic and Environmental Performance: The Case of the Chinese Manufacturing Sector

The so-called by-production approach, introduced by Murty and Russell ["On modeling pollution-generating technologies," Department of Economics, University of California, Riverside, CA, USA, 2002], has provided researchers with an improved methodology for approximating polluting production technologies. However, the original by-production model is not capable of addressing the potential tradeoff between the economic and environmental performance since it does not impose any relationship between its economic and environmental subtechnologies. Although this link has been recently proposed in the extensions to the original by-production approach, the tradeoff framework remains ambiguous with respect to the weights that can be assigned to the economic and environmental subobjectives. This article proposes a novel approach for estimating the green productivity growth in the Chinese manufacturing sector based on the scenario analysis that simulates policy preferences. Our results suggest that environmental inefficiency is generally higher than economic inefficiency and that the annual growth rates of economic and environmental productivity are sensitive to the chosen scenario or the weights assigned to the different types of performance. We demonstrate that productivity growth can range from −0.43%, when only the environmental performance is considered to 2.56%, when only the economic performance is taken into account.