Has the economic structure optimization in China’s supply-side structural reform improved the inclusive green total factor productivity?

One of the goals of China’s supply-side structural reform is to improve total factor productivity (TFP). Considering the problems of environmental deterioration and income disparity faced by China, this paper first incorporates environmental pollution and income disparity as undesirable outputs into the TFP analysis framework, and extends the concept of inclusive green TFP (henceforth IGTFP).We measure and analyze the IGTFP in China’s provinces from 1995 to 2017 using the Malmquist–Luenberger index, and then examine, for the first time, the impacts of economic structural optimization in the supply-side structural reform on the IGTFP. The results are shown as follows. First, China’s national IGTFP index is significantly smaller than the traditional TFP index. That is, the traditional TFP without the constraints of environmental pollution and income disparity overestimates China’s real TFP. Second, there are significant regional differences in China’s IGTFP, the average annual growth rate of IGTFP shows a gradual downward trend from east to west. This would further exacerbate the regional imbalance in China’s economic development. Third, among the structural factors in economic structure optimization, industrial structure and energy structure are negatively correlated with the IGTFP, while factor structure, labor structure and urban–rural structure are all positively correlated with the IGTFP. These results imply that the economic structure optimization driven by supply-side structural reform will improve China’s IGTFP.