Total Factor Productivity Growth in the Service Industry in China under Environmental Constraints

Wang Shuli; Wang Siqi; Teng Zewei

doi:doi:10.16538/j.cnki.jfe.2016.05.011

Abstract

Existing literature does not take the environmental factors into account when it measures the total factor productivity (TFP) in the service industry. And due to a lack of environmental pollution, this traditional TFP calculation cannot reflect the real performance of TFP growth in the service industry, and even can misguide policy suggestions. This paper introduces environmental factors into productivity system in the service industry, employs Malmquist-Luenberger productivity index based on DDF to re-estimate sub-sector TFP in the service industry from 2004 to 2013, and then does a comparative analysis based on Malmquist productivity index and service environmental friendliness index. This paper finds that TFP growth in the service industry is mainly caused by technical progress, and the neglect of environmental factors overestimates not only TFP in the service industry but also its contribution to the growth of the service industry; the environmental factors affect the growth performance of the service industry. The empirical results concerning the factors influencing TFP in the service industry under environmental constraints reveal that FDI in service industry does not support the pollution heaven hypothesis. Appropriate environmental regulation not only improves the environment quality but also facilitates the productivity growth in the service industry. The development level of service industry, R&D capital, endowments structure and public environmental awareness also have different impacts on TFP in the service industry.