Integrated Efficiency of Japan’s 47 Prefectures Incorporating Sustainability Factors

Abstract

The purpose of this study is to examine a productive efficiency index that incorporates two new production factors of sustainability—an environmental variable as an undesirable output and a well-being indicator as a desirable output—for 12 years of data from 2007 to 2018 pertaining to 47 prefectures in Japan. This study proposes a combination of a new data envelopment analysis (DEA) intermediate approach with the DEA super-efficiency model to measure the integrated productive efficiency. The approach incorporates CO2 emissions and a well-being indicator into the conventional productivity index. A three-stage analysis is conducted by sequentially adding new factors, CO2 emissions, and a well-being indicator. We also conduct a club convergence analysis of the productive efficiency and observe how clubs are formed, what their characteristics are, and how the efficiency changes over time. Through these approaches, we examine the practicality of the new efficiency measure and discuss regional policy implications. We found that higher labor productivity and carbon productivity in major industries caused increased productive efficiency. Adding sustainability factors to the conventional production factors in efficiency measurement widened the efficiency gap among prefectures.