Abstract
This paper examines the impact of the adoption of Flexible Manufacturing Technology (FMT) on the Technical Efficiency of Malaysia Manufacturing Industry. Owing to the potential multicollinearity, the Principal Component Analysis has been adopted to extract the most appropriate underlying dimensions of FMT in an effort to substitute the eight FMT variables. The study has been conducted within FMT intensively adopted 16 three-digit industries that encompass 50 five-digit industries covering the years 2000-2005. The results obtained from the two situations, one, including the industry fixed effects dummy variables and the other without these, are contrasted. It is found that the model that included the industry fixed effect dummy variables possesses a greater explanatory power. The two principal components that account for the greater variation in FMT show positive and moderately significant relationship with TE. The study concludes with sufficient evidence that FMT has a direct and moderately significant relationship with TE.
Highlights
IntroductionAccording to Coelli Rao, O’Donnell and Battese [2], technological progress (TP) represents advances made in technology that may be represented by an upward shift in the production frontier
Over the last two decades many researchers conducted studies that examined the factors attributing to the performance of the East Asian Economies
This paper examines the impact of the adoption of Flexible Manufacturing Technology (FMT) on the Technical Efficiency of Malaysia Manufacturing Industry
Summary
According to Coelli Rao, O’Donnell and Battese [2], TP represents advances made in technology that may be represented by an upward shift in the production frontier This methodology which is a non frontier approach, is based on the assumption that all industries are fully realising their capacity in the production process and are technically efficient. In this approach, no distinction is made between TP and changes in technical efficiency (TE) with which a known technology is adopted in production. According to Mahadevan and Kalirajan [5], TE can be due to the accumulation of knowledge in the learning-by-doing process, improvements in the instructions for mixing together raw materials, diffusion of new technology, improved managerial practices or R&D undertaken by government or profit maximising agents, or can be affected by overall market structure of industry as it affects the methods used for TI
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