Firm Ownership and Technical Efficiency: Production Frontier Analysis of Malaysian Manufacturing

Abstract

Using a new micro-based dataset of 8,472 firms covering 19 industries, this paper employs a stochastic production frontier analysis to compare time-varying technical efficiencies of foreign firms vis-à-vis local firms for the 2014 to 2019 period. The empirical findings indicate that on average, foreign firms are only marginally more (technically) efficient than local firms even after controlling for other firm characteristics. The productivity levels between foreign firms and local firms are also somewhat comparable for ‘catalytic’ industries, electrical and electronics, machinery, and chemicals. Together these results confirm that the high productivity gaps between the foreign firms and local firms in the Malaysian manufacturing sector seem to be a thing of the past.