Efficiency, productivity and returns to scale in ports: a comparison of data envelopment analysis and econometric estimation with application to Caribbean Small Island Developing States

Abstract

This paper investigates the evolutionary technical efficiency and productivity of ports in Small Island Developing States (SIDS). The focus is primarily on Caribbean SIDS, benchmarked against two comparator groups: major top ports and ports in other SIDS in the Pacific and Indian Oceans. Both a non-parametric data envelopment analysis (DEA) and the econometric corrected ordinary least squares (COLS) Malmquist Productivity Index (MPI) model are used. The results reveal a significantly lower level of technical efficiency in the Caribbean when assessed against top ports, but higher when compared to other SIDS. Caribbean ports achieved a higher rate of productivity improvement compared to top ports, and thus partially closed the efficiency gap, but not as much as ports in other SIDS. This was primarily the result of higher returns to density due to the rising traffic levels of the latter group. Analysis of both SIDS groups against the top group revealed that there exist two “tiers” in terms of port development, with those in the first representing a level of efficiency that those in the second simply cannot match. In some respects, therefore, this “inefficiency” may be better described as port underutilization. This suggests that, for these ports, maximizing the efficient use of existing capacities, and only then considering port expansion, could be the most feasible option for improving technical efficiency in the medium to long run.