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Differentials at firm level productive capacity realization in Bangladesh food manufacturing: an empirical analysis

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  • Ruhul Salim

Abstract

This article empirically estimates the firm-specific productive capacity realization (PCR) indices using the stochastic frontier production function and analyses a number of variables explaining realization rates across firms and over time. Following Battese and Coelli (1995) the stochastic frontier production function is used to estimate capacity output and thereby PCR. Using the Firm level panel data from Bangladesh food manufacturing, the results show that capacity realization rates widely vary across firms and over time. The average rate of realization is about 65% implying that most of the firms are producing away from their full production capacity. This article also identifies several firm-specific and policy-related variables explaining capacity realization. The results show that firm size (SZE) and outward orientation (OPN) have positive while capital intensity (CNSTY), market structure (MSTRE) and effective rate of assistance (ERA) have negative impact on realization rates. Strikingly, both policy-related variables are statistically insignificant. Sensitivity analysis using the 'extreme bound analysis' also confirms the fragility (insignificance) of these two variables. Excessive support to firms and piecemeal liberalization reform may be attributed to these results. Thus, further reform of the domestic and trade policies are suggested to ensure competition and competitiveness of the manufacturing sector and of the country.

Suggested Citation

  • Ruhul Salim, 2008. "Differentials at firm level productive capacity realization in Bangladesh food manufacturing: an empirical analysis," Applied Economics, Taylor & Francis Journals, vol. 40(24), pages 3111-3126.
    • Handle: RePEc:taf:applec:v:40:y:2008:i:24:p:3111-3126
    DOI: 10.1080/00036840600994088
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    References listed on IDEAS

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    1. Hal B. Lary, 1968. "Imports of Manufactures from Less Developed Countries," NBER Books, National Bureau of Economic Research, Inc, number lary68-1, March.
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    Cited by:

    1. Gitana Dudzevičiūtė & Gitana Dudzevičiūtė, 2013. "Lithuanian manufacturing trends in the context of developed and developing countries," Entrepreneurship and Sustainability Issues, VsI Entrepreneurship and Sustainability Center, vol. 1(1), pages 55-66, September.
    2. Lilai Xu (ed.), 2011. "China’s Economy in the Post-WTO Environment," Books, Edward Elgar Publishing, number 14270.
    3. Wahyu Widodo & Ruhul Salim & Harry Bloch, 2015. "The effects of agglomeration economies on technical efficiency of manufacturing firms: evidence from Indonesia," Applied Economics, Taylor & Francis Journals, vol. 47(31), pages 3258-3275, July.
    4. Gitana Dudzevičiūtė, 2013. "Lithuanian manufacturing trends in the context of developed and developing countries," Post-Print hal-01694317, HAL.
    5. Yanrui Wu, 2011. "Has Capital been Utilized Efficiently in China?," Chapters, in: Lilai Xu (ed.), China’s Economy in the Post-WTO Environment, chapter 12, Edward Elgar Publishing.

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