Abstract
This study aims to estimate the technical efficiency of food and beverage industry in East Java in 2011 to 2013 using micro data at the company level. Stochastic Frontier Analysis (SFA) and Data Envelopment Analysis (DEA) are used to estimate technical efficiency. The output variable was the value of production, while input variables were capital, labor, raw material, and energy. The Likelihood Ratio test dictates that the Translog production function is more appropriate for use in this study. The estimation results show that the efficiency of food and beverage companies in East Java by using SFA has decreased significantly by 3.02%, whereas with the DEA method, the average technical efficiency has increased by 0.583% compared to the beginning of the year in 2011. In addition, there is difference in the efficiency value between SFA and DEA. The technical efficiency value of SFA calculation is greater than that of DEA. The dissimilarity is caused by the difference of specification in both methods related to the interaction between uncaptured variables in the DEA method. The results of this policy have implications on the government's obligation to pay attention to the food and beverage industry in order to suppress the company’ various operating costs, such as maintenance for old machines, which has an impact on on technical efficiency or improve the ability of labor in terms of machinery utilization. Therefore, in the following year, the performance of the food and beverage industry as the largest sub-sector in manufacturing is able to show the progress.
Highlights
According to Wasiaturrahma and Ajija (2017), East Java is one of the provinces in Indonesia which has a higher rate of economic growth than the average national economic growth during the last five years
The results show that the Stochastic Frontier Analysis (SFA) method produces a greater efficiency level than Data Envelopment Analysis (DEA)
Both methods show different technical efficiency trends. These results have implications for the existence of interaction allegedly occurred between variables which have a greater contribution in generating production output than the main variable used in the DEA method
Summary
According to Wasiaturrahma and Ajija (2017), East Java is one of the provinces in Indonesia which has a higher rate of economic growth than the average national economic growth during the last five years. With an average growth of 6.7%, East Java is able to contribute to Indonesia’s GDP of 15% per year. The contribution of East Java Gross Regional Domestic Product occupies the second highest position after Jakarta which contributes about 17% per year. According to the data of Central Bureau of Statistic of Indonesia, Gross Regional Domestic Product (GRDP) of East Java has received a large contribution from the manufacturing sector. Compared to other sectors, such as agriculture which reached 13.56% by 2014, manufacturing industry has stabilized to become the largest contributor since 2000
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
