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Economic reforms and technical efficiency: Firm level evidence from selected industries in India

  • M. Parameswaram

    (Centre for Development Studies)

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    This paper analyses the performance of the manufacturing firms in some selected industries in terms of their technical efficiency against the background of the industrial and trade policy reforms introduced in India since 1991. A stochastic frontier production function and an associated inefficiency model are used to measure time varying firm specific technical efficiency. We define technical change as the shift of the best practice production frontier and technical inefficiency change as the movement within the best practice technology. The results show that all the industries considered registered a higher rate of technical progress in the post reform period along with a decline in the level of technical efficiency. The effect of change in the policy environment on technical efficiency varies among industries. The study also found that firms' involvement in the international trade through export and import of raw materials and technology has a positive effect on technical efficiency.

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    Paper provided by Centre for Development Studies, Trivendrum, India in its series Centre for Development Studies, Trivendrum Working Papers with number 339.

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    Length: 47 pages
    Date of creation: Oct 2002
    Date of revision:
    Handle: RePEc:ind:cdswpp:339
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    1. Egan, Mary Lou & Mody, Ashoka, 1992. "Buyer-seller links in export development," World Development, Elsevier, vol. 20(3), pages 321-334, March.
    2. Grossman, Gene M. & Helpman, Elhanan, 1991. "Trade, knowledge spillovers, and growth," European Economic Review, Elsevier, vol. 35(2-3), pages 517-526, April.
    3. Horn, Henrik & Lang, Harald & Lundgren, Stefan, 1995. "Managerial effort incentives, X-inefficiency and international trade," European Economic Review, Elsevier, vol. 39(1), pages 117-138, January.
    4. Battese, G E & Coelli, T J, 1995. "A Model for Technical Inefficiency Effects in a Stochastic Frontier Production Function for Panel Data," Empirical Economics, Springer, vol. 20(2), pages 325-32.
    5. H. Schmitz & P. Knorringa, 2000. "Learning from Global Buyers," Journal of Development Studies, Taylor & Francis Journals, vol. 37(2), pages 177-205.
    6. Krishna, Pravin & Mitra, Devashish, 1998. "Trade liberalization, market discipline and productivity growth: new evidence from India," Journal of Development Economics, Elsevier, vol. 56(2), pages 447-462, August.
    7. Dani Rodrik, 1992. "The Limits of Trade Policy Reform in Developing Countries," Journal of Economic Perspectives, American Economic Association, vol. 6(1), pages 87-105, Winter.
    8. Coe, David T & Helpman, Elhanan & Hoffmaister, Alexander, 1995. "North-South R&D Spillovers," CEPR Discussion Papers 1133, C.E.P.R. Discussion Papers.
    9. Martin, John P, 1978. "X-inefficiency, Managerial Effort and Protection," Economica, London School of Economics and Political Science, vol. 45(179), pages 273-86, August.
    10. Deraniyagala, Sonali & Fine, Ben, 2001. "New Trade Theory versus Old Trade Policy: A Continuing Enigma," Cambridge Journal of Economics, Oxford University Press, vol. 25(6), pages 809-25, November.
    11. Kodde, David A & Palm, Franz C, 1986. "Wald Criteria for Jointly Testing Equality and Inequality Restriction s," Econometrica, Econometric Society, vol. 54(5), pages 1243-48, September.
    12. repec:ind:iegddp:28 is not listed on IDEAS
    13. Fare,Rolf & Grosskopf,Shawna & Lovell,C. A. Knox, 1993. "Production Frontiers," Cambridge Books, Cambridge University Press, number 9780521420334, October.
    14. Tybout, James R, 1992. "Linking Trade and Productivity: New Research Directions," World Bank Economic Review, World Bank Group, vol. 6(2), pages 189-211, May.
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