Econometric Analysis Of Efficiency In The Indian Manufacturing Sector

by Dimitriu, Maria Caracota and  Savu, Blessy Mathew
Published in Romanian Journal of Economic Forecasting
, 2010, volume 13 issue 1, 182-197

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Performance in the manufacturing sector, in relation to productivity growth, scale efficiency and technical efficiency in India is dichotomous in nature, depending on whether the firm in question functions in the formal or informal sector. The main differences between these two sectors and the changes over a decade are observed and analyzed, using aggregated data for the entire manufacturing sector in India.
Using stochastic frontier approach, and therein the maximum likelihood models, efficiency in the two sectors is compared and verified against factors affecting the levels of efficiency obtained for each major industry category. The results are analyzed against realities on ground-level from a socio-economic perspective.

Keywords: manufacturing, formal, informal, organized, unorganized, returns to scale, technical efficiency, cross-sectional data, maximum likelihood estimation, efficiency gap, India, industries
JEL Classification: C01, C21, C22, D24, D61, E26