Measuring the environmental efficiency of countries: a directional distance function metafrontier approach

Abstract

This paper measures environmental efficiency (EE) in 63 countries over the period 1981-2005 and analyzes whether the adoption of the Kyoto Protocol is accompanied by an increase in environmental efficiency during the same period. Differences in EE across countries under distinct country-specific production frontiers are measured using a directional distance function model, which incorporates a desirable output (GDP) and an undesirable output (CO2 emissions). It is further assumed that a stochastic meta-technology-frontier exists and represents potential outputs available to all countries given inputs. The metafrontier for four country groups, high income countries, upper-middle income countries, low-middle income countries, and low income countries, are estimated using balanced panel data for the sample countries over the study period. The overall results indicate that the four country groups operated under distinct stochastic production frontiers and therefore used different production technologies. It is found that high income countries achieved the highest progress in their average environmental efficiency relative to the metafrontier, while lower-middle income countries and low income countries recorded negative growth in their average EE relative to the metafrontier.