Investigaton of the Effect of Environmental Efficiency on The Value Added of Selected Economic Sectors of Iran During the Years 1997- 2019 With Using Two Approaches DEA and Panel- ARDL

Document Type : Original Article

Authors

• fariba osmani ¹
• Ali Dehghani ²
• Mojtaba Ghiasi ³

¹ Ph.D candidate of Economic, Ferdowsi University of Mashhad

² Assistant professor of Economic, Shahroud University

³ Associate professor of of Economic, Shahroud University

https://doi.org/10.22067/erd.2022.73145.1079

Abstract

 
1- INTRODUCTION
The goal of sustainable development is to maximize the value added of various economic activities while preserving the environment. On the other hand, economic growth requires energy consumption. With the increase in energy demand, the emission of polluting gases such as CO2 also increases. Emission of greenhouse gases is one of the important factors of global warming. Therefore, different governments are looking for ways to achieve sustainable development.
Since 1885, CO2 emissions have been steadily increasing worldwide. In Iran, carbon dioxide emission follows an upward trend. On the other hand, due to Iran's oil-rich nature and the high energy loss in most of Iran's economic sectors, conducting studies on environmental efficiency in Iran is very important and necessary. Therefore, the aim of this study is to investigate the effect of environmental efficiency on the value added of selected economic sectors of Iran. For this purpose, firstly, the environmental efficiency of selected economic sectors (agriculture, oil, industry, transportation and household, commercial and general sectors) has been calculated by using the DEA method during the period 1997- 2019. After calculation of the environmental efficiency, the effect of this efficiency on the value added of selected economic sectors of Iran has been estimated by using the Panel- ARDL method.
 
2- THEORETICAL FRAMEWORK
There are different views and studies about the relationship between environment and economic growth. A group of studies with dynamic optimization models seek to maximize consumers' utility, focusing on the effects of pollution and environmental degradation on the growth. Some of these studies focus on the natural resource curse. A group of studies considered pollution as one of the production factors. Some studies also analyze the relationship between pollution and economic growth through the Kuznets environmental curve.
 
3- METHODOLOGY
In recent years, DEA is widely used to evaluate the performance of different units in various fields. The DEA method is a management method based on economic concepts that measures the efficiency of units relatively and compares units with each other. Equation (1) is presented to evaluate the environmental performance of selected economic sectors with a desirable output and an undesirable output (considered as input). The following model is an input-oriented model with constant returns to scale (CCR).
 
Min θ    
  s.t 
   
   
    
    
             I=1,2, 3, 4, 5.                          (1)
 
In the above equation, I: index related to each sector, L: Labor, K: capital, Y: value added and CO2: CO2 emission. The reason for using the CO2 emission as polluting, is that the relatively high share of this environmental pollutant compared to other polluting gases in selected economic sectors.
After calculation of the environmental efficiency, the Panel-ARDL approach is used to achieve the desired goals and examine the effect of environmental efficiency on the value added of selected economic sectors. First, by using different theories and experimental studies, the factors affecting the value added of selected economic sectors have been considered in the form of the following regression relationship:
 
    (2)
 
In the above equation, ln: represents the natural logarithm. i and t show the economic sector and time, respectively. Y: is value added, L: labor force, K: capital, E total energy consumption and EF environmental efficiency calculated by DEA method.
By explanation of the functional form of the model of factors affecting the value added of selected economic sectors of Iran, equation (2) examines the short-term and long-term relationship between variables in the ARDL format and in the panel framework.
 
(3)
 
In the above equation: i= 1, 2, ..., N represents the number of sections, t = 1, 2, ..., T represents the time period. : dependent variable and : explanatory variables of the model.
 
4- RESULTS & DISCUSSION
In this research, the environmental efficiency of selected economic sectors of Iran has been calculated by using linear programming. The results of the DEA model estimation show that the highest environmental efficiency is related to the agriculture and oil sectors and the lowest environmental efficiency belongs to the transportation sector. In the next step, the effect of environmental efficiency on the value added of selected economic sectors of Iran is evaluated with the Panel-ARDL approach.
The results of the Panel-ARDL approach show that the effect of labor on the value added of selected economic sectors in the short term is positive and significant. There is no significant relationship between labor force variable and value added of selected economic sectors in the long term. Due to the movement of economic sectors towards more use of new and advanced technologies, the total workforce will not have a significant effect on the growth of economic sectors.
The effect of capital variable on the value added of selected economic sectors in the studied period is positive and statistically significant in the long term. The growth of economic sectors to increase efficiency, use new technologies, increase capacity to reduce costs, etc., requires capital in the first place.
The variable effect of energy consumption on the value added of selected economic sectors is positive and significant in the long term, because energy consumption is required to perform any economic activity.
The variable effect of environmental efficiency on the value added of selected economic sectors in the short and long term is positive and significant. The findings of this study show that increasing the efficiency of the environment and efficient use of resources will help economic growth.
 
5- CONCLUSIONS & SUGGESTIONS
In this study, in order to investigate the effect of environmental efficiency on the value added of selected economic sectors of Iran during the years 1997 to 2019, DEA and Panel-ARDL approaches have been used, focusing on CO2 emissions due to its high weight compared to other greenhouse gases. The results of the DEA model estimation show that the agricultural and oil sectors are efficient during the period under review. The transportation sector has achieved the lowest level of environmental efficiency compared to other selected sectors. The results of econometrics show that with the increase of capital and energy consumption, the value added of selected sectors also increases. In addition, the results indicate that by increasing the environmental efficiency of the selected economic sectors, the value added of the said sectors will increase in the long term. Therefore, if the selected sectors move towards sustainable development, in addition to environmental benefits and conservation of resources and environment, their value added will also increase.
This study offers suggestions to reduce pollution and preserve the environment, such as changing production methods, using superior technologies by inefficient sectors, using low-carbon light fuels instead of heavy fuels, using non-conventional low-carbon fuels, and using incentives and punishments by the government.

Keywords

• Environmental Efficiency؛ Value Added؛ Sustainable Development. Economic sectors
• DEA
• Panel- ARDL

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