Sources of Heterogeneity in the Efficiency of Indian Pharmaceutical Firms
Using the non parametric approach of Data Envelopment Analysis (DEA) this paper examines firm’s heterogeneity in the Indian pharmaceutical industry by measuring their input and output efficiencies for the period 1991 to 2005. The analysis establishes that even though firms have been able to make efficient use of inputs like labor and raw material the output efficiency of the firms reveals a declining trend. The phenomenon can be attributed to the differences in the size of firms and the presence of economies of scale in production. Further analysis reveals the importance of firm specific factors like its strategies and structure for variation in output efficiency. We find firms that are vertically integrated with down-stream raw-material industry are more efficient. We also find that R&D is a possible strategic option for firms to gain higher efficiency but only for the large sized firms.
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