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Measuring Technical Efficiency and Returns to Scale in Indian Agriculture Using Panel Data: A Case Study of West Bengal

Author

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  • Debasis Mithiya
  • Simanti Bandyopadhyay
  • Kumarjit Mandal

Abstract

The study investigates farm level technical efficiency (TE) and its determinants in the state of West Bengal in India. A stochastic production frontier model has been applied for determining technical efficiency by using panel data on 17 agricultural production units over a period of 23 years. Maximum-likelihood estimates of the Cobb-Douglas stochastic frontier production function in a time-variant truncated normal distribution is appropriate for the measurement of technical efficiency of West Bengal agriculture in India. The estimated variance ratio indicates that 48.90 percent of the differences between the observed and the estimated output is caused by differences in farms’ technical inefficiencies. However, the remaining variation is due to factors beyond farmers’ control. The study shows that the agricultural farms in West Bengal exhibit increasing returns to scale in production. The study finds that farmers’ education and agricultural extension are important determinants of technical efficiency. Other prominent determinants that have a significant contribution are farm size, crop diversification, number of available agricultural markets, the proportion of small landholders and input intensity. All these determinants, excluding the proportion of small landholders, have a largely positive impact on technical efficiency. The maximum-likelihood estimation (MLE) and principal component analysis (PCA) are applied to determine the effects of determinants on TE. Both methods give similar results.

Suggested Citation

  • Debasis Mithiya & Simanti Bandyopadhyay & Kumarjit Mandal, 2019. "Measuring Technical Efficiency and Returns to Scale in Indian Agriculture Using Panel Data: A Case Study of West Bengal," Applied Economics and Finance, Redfame publishing, vol. 6(6), pages 1-14, November.
    • Handle: RePEc:rfa:aefjnl:v:6:y:2019:i:6:p:1-14
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    References listed on IDEAS

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    Cited by:

    1. Radha R. Ashrit, 2023. "Estimation of technical efficiency of Indian farms for major crops during 2013–2014 and 2017–2018: a stochastic Frontier production approach," SN Business & Economics, Springer, vol. 3(2), pages 1-32, February.

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    More about this item

    Keywords

    agricultural extension; cobb-douglas; crop diversification; maximum likelihood estimation; panel data; principal component analysis; stochastic frontier; technical efficiency; time-variant; truncated normal distribution;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets

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