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Technical Efficiency in the Informal Manufacturing Enterprises: Firm level evidence from an Indian state

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  • Rajesh Raj, Seethamma Natarajan

Abstract

The small and medium enterprise sector plays a pivotal role in the socio-economic development and growth of nations. But there is evidence that the firms in this sector are less efficient than those in the large enterprise sector. Hence it is imperative to examine their efficiency levels in order to identify the factors that contribute inefficiency in these firms and to generate information for designing support policies for them. In this study, level and sources of technical efficiency in the unorganised manufacturing sector in the Indian state of Kerala is examined using translog stochastic frontier production function. The analysis is conducted for five broad industry groups and the sector as a whole using firm level data. The findings show that high levels of technical inefficiency, which reduce their potential levels significantly, characterize the unorganised manufacturing enterprises in Kerala. Regarding the factors contributing to inefficiencies, it is observed that size, ownership, region (location) and nature of seasonality of operation significantly influence technical efficiency level in most of the industry groups. We also find that credit availability and employment of hired labour play an important role in explaining technical efficiency levels.

Suggested Citation

  • Rajesh Raj, Seethamma Natarajan, 2007. "Technical Efficiency in the Informal Manufacturing Enterprises: Firm level evidence from an Indian state," MPRA Paper 7816, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:7816
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    File URL: https://mpra.ub.uni-muenchen.de/7816/1/MPRA_paper_7816.pdf
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    References listed on IDEAS

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    Cited by:

    1. Khandker, Shahidur R. & Samad, Hussain A. & Ali, Rubaba, 2013. "Does access to finance matter in microenterprise growth ? evidence from Bangladesh," Policy Research Working Paper Series 6333, The World Bank.
    2. Ceyhun Elgin & Oguz Oztunali, 2014. "Institutions, Informal Economy, and Economic Development," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 50(4), pages 145-162.
    3. Indrajit Bairagya, 2011. "Distinction between Informal and Unorganized Sector: A Study of Total Factor Productivity Growth for Manufacturing Sector in India," Journal of Economics and Behavioral Studies, AMH International, vol. 3(5), pages 296-310.
    4. Jayanta Sen & Debarati Das, 2016. "Technical Efficiency in India?s Unorganised Manufacturing Sector: A Non-parametric Analysis," International Journal of Business and Management, International Institute of Social and Economic Sciences, vol. 4(4), pages 92-101, November.
    5. Haile Girma & Gadisa Abera Dinka & Mohammedsani Ali Gelan, 2019. "Estimation of Technical Efficiency of Micro and Small-Scale Manufacturing Enterprises in Selected Towns of Jimma Zone, Oromia National Regional State," Journal of Economics and Behavioral Studies, AMH International, vol. 11(4), pages 88-101.
    6. Padmavathi N, 2019. "Technical efficiency of unorganised food processing industry in India: A stochastic frontier analysis," Working Papers 449, Institute for Social and Economic Change, Bangalore.

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    More about this item

    Keywords

    Technical Efficiency; Stochastic Frontier Production Function; Unorganised Manufacturing Sector; Kerala;
    All these keywords.

    JEL classification:

    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology

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