Impact of reforms on plant-level productivity and technical efficiency: Evidence from the Indian manufacturing sector

It is generally believed that the structural reforms that usher in competition and force companies to become more efficient were introduced later in India following the macroeconomic crisis in 1991. However, whether the post-1991 growth is an outcome of more efficient use of resources or greater use of factor inputs, especially capital, remains an open empirical question. In this paper, we use plant-level data from 1989-90 and 2000-01 to address this question. Our results indicate that while there was an increase in the productivity of factor inputs during the 1990s, most of the growth in value added is explained by growth in the use of factor inputs. We also find that median technical efficiency declined in all but one of the industries between the two years, and change in technical efficiency explains a very small proportion in the change in gross value added

Estimation of Technical and Allocative Inefficiencies in a Cost System: An Exact Maximum Likelihood Approach

Estimation and decomposition of overall (economic) efficiency into technical and allocative components goes back to Farrell (1957). However, in a cross-sectional framework joint econometric estimation of efficiency components has been mostly confined to restrictive production function models (such as the Cobb-Douglas). In this paper we implement a maximum likelihood (ML) procedure to estimate technical and allocative inefficiency using the dual cost system (cost function and the derivative conditions) in the presence of cross-sectional data. Specifically, the ML procedure is used to estimate simultaneously the translog cost system and cost increase due to both technical and allocative inefficiency. This solves the so-called ‘Greene problem’ in the efficiency literature. The proposed technique is applied to the Christensen and Greene (1976) data on U.S. electric utilities, and a cross-section of the Brynjolfsson and Hitt (2003) data on large U.S. firms.Technical inefficiency, allocative inefficiency, the Greene problem, translog cost function

Firm-Heterogeneity, Persistent and Transient Technical Inefficiency

This paper provides a new model that disentangles firm effects from persistent (time-invariant/long-term) and transient (time-varying/short-term) technical inefficiency.Bayesian analysis; Markov Chain Monte Carlo; Technical efficiency.

MODELLING FARMS' PRODUCTION DECISIONS UNDER EXPENDITURE CONSTRAINTS

Limited budget for the purchase of variable inputs might adversely affect producer's input use decisions and might result in a non-optimal input usage. If expenditure constrains are present and binding, unconstrained profit-maximization is not valid for modelling producers' input use decisions. In this paper we apply the indirect production function approach which describes output maximization subject to a given technology, a set of quasi-fixed inputs and a given budget for the purchase of variable inputs. By employing the indirect production function in the stochastic frontier framework we can estimate producer's output loss due to both expenditure constraints and technical inefficiency. Our estimation results show that most of the study farms were expenditure constrained during the considered period. Expenditure constraints have caused on average a potential output loss of 11 percent. Output loss due to technical inefficiency is quite moderate and averages 18 percent.Indirect production function, SFA, expenditure constraints, technical efficiency, Russian agriculture, Farm Management, Research Methods/ Statistical Methods,

Financial Sector Development and Productivity Growth

productivity growth, financial sector development

A General Model of Technical Change with an Application to the OECD Countries

In the neoclassical production functions model technical change (TC) is assumed to be exogenous and it is specified as a function of time. However, some exogenous external factors other than time can also affect the rate of TC. In this paper we model TC via a combination of time trend (purely non-economic) and other observable exogenous factors, which we call technology shifters (economic factors). We use several composite technology indices based on appropriate combinations of the external economic factors which are indicators of different aspects of technology. These technology indices are embedded into the production function in such a way that they can complement to different inputs. By estimating the generalized production function, we get estimates of TC which is decomposed TC into a pure time component as well as several producer specific external economic factors. Furthermore, the technology shifters allow for non-neutral and biased shifts in TC. We also consider a simple model in which the technology shifters are aggregated into one single index. The empirical model uses panel data on OECD, accession and enhanced engagement countries observed during 1980-2006.technical change, total factor productivity growth, technology indicator, technology shifter, OECD countries

Derivation of marginal effects of determinants of technical inefficiency

In efficiency studies using the stochastic frontier approach, the main focus is to explain inefficiency in terms of some exogenous variables and computation of marginal effects of each of these determinants. Although inefficiency is estimated by its mean conditional on the composed error term (the Jondrow et al., 1982 estimator), the marginal effects are computed from the unconditional mean of inefficiency (Wang, 2002). In this paper we derive the marginal effects based on the Jondrow et al. estimator and use the bootstrap method to compute confidence intervals of the marginal effects