Effects of pollution abatement activities on environmental efficiency and productivity: Empirical evidence from the Chinese industrial sector

• Published date: 01 February 2022
• Author: Masayuki Shimizu
• Date: 01 February 2022
• DOI: http://doi.org/10.1111/rode.12820

484

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wileyonlinelibrary.com/journal/rode Rev Dev Econ. 2022;26:484–509.

© 2021 John Wiley & Sons Ltd

Received: 4 March 2019

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Revised: 16 July 2021

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Accepted: 2 August 2021

DOI: 10.1111/rode.12820

REGULAR ARTICLE

Effects of pollution abatement activities on

environmental efficiency and productivity:

Empirical evidence from the Chinese industrial

sector

MasayukiShimizu

Faculty of Global and Regional Studies,

University of the Ryukyus, Okinawa, Japan

Correspondence

Masayuki Shimizu, Faculty of Global

and Regional Studies, University of the

Ryukyus, 1 Senbaru, Nishihara- cho,

Nakagami- gun, Okinawa 903- 0213, Japan.

Email: mshimizu@grs.u-ryukyu.ac.jp

Funding information

Japan Society for the Promotion of Science,

Grant/Award Number: 17K03698 and

24530323

Abstract

Since the 2000s, China has been aggressively involved in

controlling industrial pollution, and end- of- pipe approaches

have certainly reduced pollution emissions. This study aims

to measure environmental efficiency and productivity in

the Chinese industrial sector and investigate whether pol-

lution abatement activities have a negative impact on envi-

ronmental efficiency and productivity. Using regional data

from 29 provinces from 1997 to 2010, the results show that

significant improvements were made in environmental effi-

ciency and productivity in the Eastern region, but not in the

Western region. The estimation results after conducting a

panel data analysis, however, show that increased pollution

abatement activities are associated with a decline in envi-

ronmental efficiency and productivity. The findings suggest

that if China can promote the diffusion of cleaner produc-

tion technology with the expansion of abatement activities,

there is potential for increasing the levels of environmental

efficiency and productivity.

KEYWORDS

Chinese industrial sector, environmental efficiency, environmental

productivity, pollution abatement activities, pooled mean group

JEL CLASSIFICATION

C33; Q52; Q56

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485

SHIMIZU

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INTRODUCTION

Since the 2000s, China has experienced rapid economic growth and severe domestic pollution. A main

source of pollution is the expansion of heavy industrialization, and industrial pollution has inflicted

enormous damage on the economy. Industrial sulfur dioxide (SO2) emissions, which are the cause of

ambient air pollution, increased from 16.13 million tonnes in 2000 to 21.68 million tonnes in 2005

(Ministry of Environmental Protection (MEP), 2006). Although emissions decreased to 18.64 million

tonnes in 2010, they still exceeded the 2000 level (MEP, 2011). The exacerbation of air pollution has

not only caused health damage to people close to pollution sources but also had a wide range of harm-

ful effects on crops and buildings because of acid rain.1

However, the Chinese government has been accelerating its efforts to control domestic pollution

since the 2000s. In the Eleventh Five- Year Plan period, China succeeded in reducing SO2 emissions

by 10% compared to the 2005 level (MEP, 2011) and by 8% in the Twelfth Five- Year Plan period,

compared to the 2010 level (MEP, 2016). In the Thirteenth Five- Year Plan period, the government

aimed to reduce SO2 emissions by 10% compared to the 2015 level.

In general, the government has a strong incentive to resolve industrial pollution. Consequently,

emission control has been proactively promoted to mitigate domestic pollution. Recently, end- of- pipe

technologies established in developed countries, such as flue gas desulfurization systems, have been

rapidly diffused to reduce pollution emissions in China. In 2011, the desulfurization cost accounted

for 53.3% of the expenditure related to the pollution abatement of industrial waste gas (Editorial Board

of China Environment Yearbook (EBCEY), 2016).

The positive aspect of diffusing end- of- pipe technologies is that it is possible to reliably reduce emis-

sions.2 However, the potential for a decline in production levels has a negative consequence as workers,

equipment, and energy used for emission management are usually not investments that increase produc-

tion; consequently, production efficiency and productivity growth may not improve as much as expected

(Managi & Kuriyama,2017, pp. 202– 207). Compared to cases where there is no obligation to reduce

emissions, if improvements in efficiency and productivity are hindered by controlling emissions, environ-

mental efficiency and productivity deteriorate (Färe etal.,1996; Kaneko & Managi,2004).

This study aims to propose an environmental index related to efficiency and productivity, which are

represented by the Environmental Efficiency Index (EEI) and Environmental Productivity Index (EPI),

to understand the actual state of efficiency and productivity during the period of severe industrial

pollution in China. Using regional data from 29 provinces from 1997 to 2010, the study measures the

EEI and EPI by considering industrial SOx emissions by applying data envelopment analysis (DEA).

Meanwhile, in China, the cost of emission control is overly dependent on self- financing rather

than government subsidies, and the percentage of self- f inancing in expenditures related to industrial

pollution abatement exceeded 90% in the 2000s (EBCEY, 2011). Consequently, expanding pollution

abatement activities means that it is possible that investments to improve production efficiency and

productivity growth will further decrease. Thus, such abatement activities increase the risk of a de-

cline in environmental efficiency and productivity.

In this study, the second aim is to investigate the effects of pollution abatement activities on the

EEI and EPI. Using panel data analysis, the study demonstrates whether abatement activities nega-

tively affect environmental efficiency and productivity in the Chinese industrial sector.

The remainder of this paper is organized as follows. Section2 provides a brief review of the lit-

erature and presents the contributions of this study. Section3 explains the method used to measure

environmental efficiency and productivity and reports the results of the empirical analyses. Section4

presents the empirical panel data model and reports the results of panel data analyses. Section5 sum-

marizes the findings and derives policy implications.