Port privatization, efficiency and competitiveness: Some empirical evidence from container ports (terminals)

Abstract

Few studies have investigated the quantitative relationship between port ownership structure and port efficiency with mixed results. This study applies a stochastic frontier model proposed by Battese and Coelli [Battese, G.E., Coelli, T.J., 1995. A model for technique inefficiency effects in a stochastic frontier production function for panel data. Empirical Economics 20, 325–332], which incorporates the inefficiency effect, to show whether port privatization is a necessary strategy for ports to gain a competitive advantage. While this stochastic frontier model has been used to a wide number of industries where the technical inefficiency effect is required, this method has rarely been employed to port industry. This study also investigates the determinants of port competitiveness. Both the principal component analysis (PCA) and the linear regression model are used to examine the effects of identified key factors on port competitiveness. Based on a sample of selected container terminals around the world, the results of this study have shown that private sector participation in the port industry to some extent can improve port operation efficiency, which will in turn increase port competitiveness. Another important determinant of port competitiveness is the adaptability to the customers’ demand. All these results provide some policy implications and guidance for port authorities and port operators in formulating effective strategies to improve their competitiveness vis-à-vis rivals.