A Nexus between Environmental and Economical Efficiency: New Evidence to Developing and Developed Countries

Economical efficiency implies on the ability of an organization to produce and distribute a product at lowest possible cost. Environmental efficiency, as an important element of sustainable development, explains the status of pollution production from inputs. If economic activities, in terms of environmental are not efficient, it will be difficult to achieve sustainable development. Promoting economical efficiency provides necessary financial resources to improve the quality of the environment. In this paper, we investigate the relationship between environmental efficiency and economical efficiency. For this purpose, first we estimate environmental and economical efficiency for 50 developed and developing countries including Iran in the period of 2002-2012, using Data Envelopment Analysis (DEA) method. Afterwards, we study the nexus between environmental and economical efficiency through forming a system of simultaneous equations as well as Granger causality test. The results of efficiency measurement show that developed countries have higher environmental and economical efficiencies compared to developing countries. In this line, the average of environmental and economical efficiencies of Iran are 0/570 and 0/379, respectively, that are lower than the average of the selected countries. Furthermore, the results from Granger causality test indicate a bilateral relationship between the economical efficiency and environmental efficiency in selected countries. Based on the present research results, it seems that the upgrading one of the two efficiencies will make increase another.