ELSADIG MUSA AHMED, MULTIMEDIA UNIVERSITY, MALAYSIA
The methods used to measure productivity growth generally ignore the pollutants that are produced by the industrial processes. For example, pollutant emissions generated as undesirable output beside the main output of Malaysia’s manufacturing sector are excluded from the productivity accounting framework. This study aims at an extended productivity measure that takes pollutants into account by internalisation of Carbon Dioxide (CO2) as measure of air pollutant emissions into production function as un-priced input. Two models were generated from the production functions to measure manufacturing sector productivity growth. The first is an extensive growth theory model and the second an intensive growth theory model. The extensive theory model had a gap that cast doubt in the results. A statistical analysis was provided to close this gap. Exclusion of externalities such as pollutant emissions created a deficiency in growth accounting models as those pollutant emissions were internalised in order to calculate the green total factor productivity. The results show that there was a slowdown in the contribution of total factor productivity (TFP) growth in general and a negative impact of CO2 emissions produced by the sector in particular compared to other productivity indictors of the sector when CO2 is internalised in the models.
Keywords: CO2 Emissions; Economic Impact; Malaysia, Manufacturing Sector; Productivity Growth; Total Factor Productivity Growth (TFP).