An analysis of the impact of service inputs in manufacturing industries on eco-efficiency: evidence from China

The eco-efficiency of manufacturing industries has been a concern for decades in China. However, less attention has been paid to the growing service inputs in manufacturing industries and their eco-efficiency impact. Based on China’s input-output tables in consecutive years collected from the structural analysis database issued by the OECD, this study describes service inputs in manufacturing industries with the direct and total consumption coefficients and then primarily discusses its environmental impacts as measured by the green total factor productivity. It finds that a significant nonlinear U-shaped relationship exists between service inputs in manufacturing industries and eco-efficiency in which the expected positive impact only emerges when a critical level of service inputs is achieved. The findings exhibit significant robustness under various measures of outcome variables and explanatory variables, as well as subsample checks and instrumental variable estimation. Environmental technical progress, rather than environmental technical efficiency, plays a decisive role in the U-shaped relationship and contributes to improvement in eco-efficiency. Furthermore, this study reveals that service inputs in the form of direct consumption of intermediate service in manufacturing industries have a significant positive impact on eco-efficiency.