Technical Efficiency in the Indian Textiles Industry: a Nonparametric Analysis of Firm-Level Data

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University of Connecticut

DigitalCommons@UConn
Economics Working Papers Department of Economics

11-1-2007

Technical Efficiency in the Indian Textiles Industry: A Nonparametric Analysis of Firm-Level Data Anup Kumar Bhandari
Indian Statistical Institute, Kolkata

Subhash C. Ray
University of Connecticut

Follow this and additional works at: http://digitalcommons.uconn.edu/econ_wpapers Recommended Citation Bhandari, Anup Kumar and Ray, Subhash C., "Technical Efficiency in the Indian Textiles Industry: A Nonparametric Analysis of FirmLevel Data" (2007). Economics Working Papers. Paper 200749. http://digitalcommons.uconn.edu/econ_wpapers/200749

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Department of Economics Working Paper Series
Technical Efficiency in the Indian Textiles Industry: A Nonparametric Analysis of Firm-Level Data Anup Kumar Bhandari Indian Statistical Institute, Kolkata

Subhash C. Ray
University of Connecticut

Working Paper 2007-49 November 2007

341 Mansfield Road, Unit 1063 Storrs, CT 06269–1063 Phone: (860) 486–3022 Fax: (860) 486–4463 http://www.econ.uconn.edu/ This working paper is indexed on RePEc, http://repec.org/

Abstract
The Indian textiles industry is now at the crossroads with the phasing out of quota regime that prevailed under the Multi-Fiber Agreement (MFA) until the end of 2004. In the face of a full integration of the textiles sector in the WTO, maintaining and enhancing productive efficiency is a precondition for competitiveness of the Indian firms in the new liberalized world market. In this paper we use data obtained from the Annual Survey of Industries for a number of years to measure the levels of technical efficiency in the Indian textiles industry at the firm level. We use both a grand frontier applicable to all firms and a group frontier specific to firms from any individual state, ownership, or organization type in order to evaluate their efficiencies. This permits us to separately identify how locational, proprietary, and organizational characteristics of a firm affect its performance. Journal of Economic Literature Classification: L67, C61 Keywords: Data Envelopment Analysis; Meta-Frontier; Technology Closeness ratio

TECHNICAL EFFICIENCY IN THE INDIAN TEXTILES INDUSTRY: A NONPARAMETRIC ANALYSIS OF FIRM-LEVEL DATA

Anup Kumar Bhandari Indian Statistical Institute, Kolkata, India Subhash C. Ray University of Connecticut, Storrs, CT USA Introduction The Multi-Fiber Agreement (MFA) introduced in 1974 exempted international trade in textiles and garments from the broad regulations of GATT and allowed countries to impose bilateral quotas on import of various categories of textile products. Designed primarily as a way to protect producers from the developed world against competition from cheaper imports from the developing countries, the MFA has eventually been phased out on January 1, 2005. This is a major change in the international trade scenario for textile manufacturers across the world offering opportunities for penetration into markets that have been off limits under the previous regime while at the same time posing threats of market loss in the face of competition from other countries. For India, in particular, performance of the textile industry in this new era can be of major significance for the economy as a whole. In 2000-01 the textiles industry accounted for about 4% of the GDP, 14% of industrial production, 18% of total industrial employment, and 27% of export earnings1. Maintaining and enhancing productive efficiency is a precondition for competitiveness in the new liberalized world market. India had bilateral arrangements under MFA with the developed countries like USA, Canada, countries of the European...
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