The Empirical Results

Technical efficiencies under the constant returns to scale have been obtained by solving programs (5) and (6) for the strong and weak disposability.

According to the comparison of these two technical efficiencies, we can calculate the environmental efficiency index and productivity loss from regulations. All of the results are shown in Table 1.

Under the strong disposability, namely, the assumption without any cost to dispose pollutants, average technical efficiency for the eastern region was 0.762 from 1994 to 2007. It implies that the eastern region had technical inefficiency of almost 23.8 percent in this period, in other words, the eastern region could increase production by 23.8 percent holding the fixed inputs under the strong disposability from 1994 to 2007. In this case, the technical efficiency of no province was equal to 1, that is, no any province in the eastern region behaved efficiently during this period. Comparing to the strong disposability, under the weak disposability assumption, i.e. environmental regulation restricting pollutant emissions, average technical efficiency for the eastern region was 0.808, larger than that under the strong disposability. In details, the technical efficiencies of five provinces, which are Shanghai, Zhejiang, Shandong, and Guangdong, were equal to 1, that is, the five provinces were technically efficient under the weak disposability during the 1994-2007 period. From these results, we can know that technical efficiency increased in the eastern region due to environmental regulation during the 1994-2007 period. For the central region, average technical efficiency under the weak disposability was 0.963 while that was 0.955 under the strong disposability. Although there was only one province, Jiangxi, behaving efficiently under the strong disposability, there were three

provinces including Heilongjiang, Jiangxi, and Hubei, to reach the frontier, that is, be technically efficient under the weak disposability. For the western region, the numbers of provinces technically efficient are same under both of the assumptions, however, technical efficiency level still increased from 0.836 under the strong disposability to 0.839 under the weak disposability.

The results aforementioned show that the central region showed the highest technical efficiency under both of the assumption, followed the eastern region, at last the western region. In addition, technical efficiency increased due to environmental regulations in all of three regions. It can be considered that each producer tries to improve its technical efficiency in order to reduce pollutant emissions when the disposal of pollutants is at a cost due to environmental regulations. Because China has enacted environmental regulations since the 1980s, it is considered that technical efficiency under the assumption of weak disposability approaches the reality.

Besides the scores of technical efficiency, Table 1 also shows the environmental efficiency index and the rate of productivity loss due to regulations under the constant returns to scale. The environmental efficiency index is the ratio of technical efficiencies under the strong and weak disposability. The rate of productivity loss (RPL) can be calculated by 1 minus the environmental efficiency index. The results show that the RPL of Tianjin which is 9.93 percent is largest in the whole country, and followed by Shanghai 6.90 percent, and Beijing 6.02 percent and Guangdong 5.50 percent. All of these provinces belong to the eastern region. As a result, the average rate of productivity loss of the Eastern Region that is 5.76 percent is largest among three regions, followed by the Central Region, 0.88 percent, and last one the western region, only 0.33 percent. It implies that the eastern region achieved the

high growth accompanying with larger productivity loss because of the enforcement of environmental regulations from 1994 to 2007. The central and western regions did not show the larger productivity loss comparing with the eastern region. Therefore, we can say that strengthening environmental regulations in the central and western region is feasible at the current situation, however, for the eastern region, improving environmental technology and productive efficiency are indispensable while strengthening environmental regulations.

We have already examined the technical efficiency of each province under the constant returns to scale. We also want to know which province was actually influenced by scale size. Because the technical efficiency under the weak disposability of wastewater and SO₂ is considered to be close to the actual one in Chinese manufacturing sector, we only focus on the analysis of scale efficiency under the weak disposability. From the results, we can know that the scale efficiencies of 11 provinces are 1.000, that is, these provinces were scale efficient in this period. Other 14 provinces were scale inefficient. In these 14 provinces, the scale efficiency indices of Sichuan and Qinghai are 0.693 and 0.608, respectively. It means that the technical inefficiency of two provinces resulted from serious scale inefficiency. Conversely, the technical inefficiencies of other provinces, such as Beijing and Yunnan, were caused by the inefficient operation or mismanagement of production rather than the scale inefficiency.

As a whole, the results indicate that the most of provinces in China did not exhibit serious scale inefficiency. Their inefficiencies are mainly attributable to their inefficient operation or mismanagement.

At last, we also analyzed the different situations of productivity loss from regulations when we consider two pollutants separately. For both of cases, the

loss of the eastern region showed largest, followed by those of the central region and the western region. For the eastern region, the loss from wastewater is larger than that from SO₂, however, for the central region, the loss from SO₂ is larger than that from wastewater. For the western region, there is no large difference.

The results show that the opportunity costs of both wastewater and SO₂ in the eastern region were largest among three regions. That is one reason of why the industrial pollutions are currently transferring from the eastern region to the central and western regions in China.