Technological determinants of firm-level technical efficiency in the Indian machinery industry

Abstract

In the framework of resources-based view, a firm's performance is often defined in terms of its efficiency level in relation to other firms in an industry. Adopting this framework, the study examines the technological determinants of firm-level technical efficiency (TE) in the context of Indian machinery industry (IMI). It first computes the firm- and year-specific TE by estimating a stochastic frontier production function with the help of an unbalanced panel of data on a sample of 178 firms (with 940 observation) for seven years covering financial years from 2000/2001 to 2006/2007. Thereafter, the study analyses the determinants of firm-level TE by estimating a random-effect panel data model with Tobit specification. The study finds that a firm in the IMI could improve its TE by enhancing its technological resources and capabilities through attraction of foreign direct investment (FDI), import of disembodied technology, in-house research and development (R&D), import of intermediate goods and use of capital intensive techniques of production. In addition, it is also found that the larger size and younger firms; firms with higher networth intensity and higher product differentiation; firms based in less concentrated sub-industries of IMI are more efficient.†