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Parametric tests of allocative efficiency in the manufacturing sectors of India and Pakistan

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  • Abid Burki
  • Mushtaq Khan
  • Bernt Bratsberg

Abstract

This paper estimates allocative inefficiency in the manufacturing sectors of India and Pakistan. Based on an extension of the translog profit function approach, we propose a new method to the estimation of allocative inefficiency in two countries (or groups). The model is estimated using pooled annual data from the large scale manufacturing sectors of India and Pakistan over the period 1959-87. We find evidence of allocative inefficiencies in both countries. Specifically, results reveal that manufacturing firms in the two countries over-utilize capital and raw materials relative to labour and energy. The magnitude of over-utilization of capital is more severe in Pakistan than in India. We argue that these findings are hardly surprising given the structure of factor markets and past government policies in the two countries.

Suggested Citation

  • Abid Burki & Mushtaq Khan & Bernt Bratsberg, 1997. "Parametric tests of allocative efficiency in the manufacturing sectors of India and Pakistan," Applied Economics, Taylor & Francis Journals, vol. 29(1), pages 11-22.
    • Handle: RePEc:taf:applec:v:29:y:1997:i:1:p:11-22
    DOI: 10.1080/000368497327353
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    Cited by:

    1. Abid Burki & S.M. Hussain, 2017. "Opportunities and Risks of Liberalising Trade in Services in Pakistan," Working Papers id:12351, eSocialSciences.
    2. Eatzaz Ahmad & Muhammad Idrees, 1999. "The Time Profile of the Cost Structure in Pakistan’s Manufacturing Sector," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 38(4), pages 1101-1116.
    3. Badunenko, Oleg & Fritsch, Michael & Stephan, Andreas, 2008. "Allocative efficiency measurement revisited--Do we really need input prices?," Economic Modelling, Elsevier, vol. 25(5), pages 1093-1109, September.
    4. Sohail Zafar & Eatzaz Ahmed, 2005. "Evidence on Allocative Efficiency and Elasticities of Substitution in the Manufacturing Sector of Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 44(4), pages 795-803.
    5. Christopoulos, Dimitris K. & Tsionas, Efthymios G., 2002. "Allocative inefficiency and the capital-energy controversy," Energy Economics, Elsevier, vol. 24(4), pages 305-318, July.
    6. Burki, Abid A. & Khan, Mahmood-ul-Hasan, 2004. "Effects of allocative inefficiency on resource allocation and energy substitution in Pakistan's manufacturing," Energy Economics, Elsevier, vol. 26(3), pages 371-388, May.
    7. Shabbir Ahmad & Abid A. Burki, 2016. "Banking deregulation and allocative efficiency in Pakistan," Applied Economics, Taylor & Francis Journals, vol. 48(13), pages 1182-1196, March.

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