Parametric Approach to Production Efficiency of Textile Exports in Pakistan

Abstract

Pakistan’s economy is mainly dependent on textile industry. Textile manufacturers and policy makers are giving priority to improve production efficiency in the textile industry. To compete with rival firms, production efficiency appeared more important than before. This study has analysed the production efficiency of textile manufacturing and exporting firms in Pakistan. The data from annual reports of limited companies registered on the stock exchanges of Pakistan has been used. Cobb-Douglas (half - normal) Stochastic Frontier output model and MLE technique have been applied. Empirical results demonstrate that on average, during the 2016-17, the variable “Cost of material” has the highest elasticity of output (0.719) while the variable “Salaries and wages” has the second larger elasticity of output (0.154). The third input (Energy charges) has elasticity of output 0.096, and the fourth input (Value of operating fixed asset) has the lowest elasticity of output (0.039). The level of production efficiency of the firms in Pakistan ranged from 66.5 percent to 96.73 percent with a mean 89.55 percent during the year. The average estimated value of “” indicated that majority (approximately 71.95%) of the variations in the firms’ output were due to difference in technical inefficiency (ui) and small (28.05 %) variations were due to random error (vi). Keywords: Textile Manufacturing and Exporting Firms, Technical Efficiency, Stochastic Frontier Output, MLE Technique, Cobb-Douglas Production Function.