May 2009

IZA DP No. 4199: A Sequential Malmquist-Luenberger Productivity Index

published as 'A sequential Malmquist–Luenberger productivity index: Environmentally sensitive productivity growth considering the progressive nature of technology ' in: Energy Economics, 2011, 32 (6), 1345 - 1355

This study proposes an alternative methodology for measuring environmentally sensitive productivity growth. The rationale of this methodology is to consider the features of technology appropriately by excluding a spurious technical regress based on the macroeconomic perspective. In order to consider this condition and to develop an alternative index, a directional distance function and the concept of the successive sequential production possibility set are combined. With this combination, the conventional Malmquist-Luenberger productivity index is modified to give the alternative sequential environmentally sensitive productivity index. This proposed index is employed in measuring productivity growth and its decomposed components of OECD countries for the period 1970-2003. We distinguish two main empirical findings. First, even though the components of the conventional Malmquist-Luenberger productivity index and the proposed index are different, the developments of productivity are similar. Second, unlike in previous studies, the efficiency change is the main contributor to the earlier study period, whereas the effect of technical change has prevailed over time.