CRIEFF Discussion Paper Number 0906
The Estimation of
Technical Efficiency Effects Models with an Example Applied to the Thai
Manufacturing Sector
Suwanee Arunsawadiwong and Gavin C.
Reid
Abstract
This paper does two things. First, it presents
alternative approaches to the standard methods of estimating productive
efficiency using a production function. It favours a
parametric approach (viz. the stochastic production frontier approach) over a
non-parametric approach (e.g. data envelopment analysis); and, further, one
that provides a statistical explanation of efficiency, as well as an estimate
of its magnitude.
Second, it illustrates the favoured
approach (i.e. the ‘single stage procedure’) with estimates of two models of
explained inefficiency, using data from the Thai manufacturing sector, after
the crisis of 1997. Technical efficiency is modelled
as being dependent on capital investment in three major areas (viz. land,
machinery and office appliances) where land is intended to proxy the effects of
unproductive, speculative capital investment; and both machinery and office
appliances are intended to proxy the effects of productive, non-speculative
capital investment.
The estimates from these models cast new light on the
five-year long, post-1997 crisis period in Thailand, suggesting a structural
shift from relatively labour intensive to relatively
capital intensive production in manufactures from 1998 to 2002.
JEL Classifications: C210, L640, N650, L690, L850.
Keywords:
productive efficiency; stochastic production frontier; Thai manufacturing
sector.
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