Parametric Frontier Research Articles

An Examination of Technical Efficiency of MSMEs Industries in Haryana: A Case Study of Faridabad District

India's economy's micro, small, and medium-sized enterprises (MSME) sector produce several goods. One of the most accurate ways to characterize the Industrial Sector is by its technical efficiency, which allows it to sustain a high level of manufacturing production. An investigation of the productivity and efficiency of micro, small, and medium-sized firms (MSMEs) in the industrial sector of Faridabad, Haryana, is carried out using parametric frontier analysis. Within the context of his essay on efficiency evaluation, which was published in 1957, Farrell presented various approaches for examining productivity and efficiency. The function that determines the creation of the stochastic frontier. We use a multistage estimation technique that incorporates four distinct error components to arrive at reasonable estimates. From 2016 through 2022, the data from the Ministry of MSMEs and the organization that is part of the state government were utilized. An investigation into the machinery and equipment that is utilized by micro, small, and medium-sized firms will be carried out as part of this study.

Labor differentiation and cotton productivity in Burkina Faso

AbstractAgriculture is a very important sector in Africa's economic development, particularly in Burkina Faso, as it employs a large proportion of the population. Given the importance of labor in this sector, a good allocation of the different types of labor could help increase agricultural productivity in Burkina Faso. This research contributes to the literature by determining the specific contributions of each type of labor in enhancing cotton productivity. The sample of this research is 477 cotton farms, and a semiparametric stochastic frontier model has been used in the analysis. The results show that the proportion of wage labor has a nonlinear effect and contributes to improving cotton productivity when the number of educated people in the household increases. But family labor decreases cotton productivity when the number of educated people in the household increase. The comparison between the findings of the semiparametric and parametric frontier shows that technical efficiency is 72.44% when education is used as the channel through which production factors affect cotton productivity. However, this technical efficiency is 54.96% when production factors directly affect cotton productivity in the parametric frontier model. Promoting education in rural areas will help to increase the number of people educated and consequently improve cotton productivity.

Measuring dynamic and static eco-efficiency in Norwegian dairy farms: a parametric approach

Eco-efficiency is gaining popularity to measure the agricultural system's economic and environmental performance. The dynamic eco-efficiency of the agricultural system is assessed in this study using a parametric frontier framework that considers the inter-temporal nature of production decisions and methane emissions. We also estimated the static eco-efficiency model for comparison. The empirical analysis is based on 30 years of unbalanced panel data from 692 dairy farms (1991–2020). The generalized method of moment estimation is used to compute dynamic models. Both dynamic and static models show that dairy farms in the study area used available technology inefficiently, which means that some farmers produced lower outputs per input than the best-performing farmers. According to the dynamic eco-efficiency score, dairy farms only generate 94% of the maximum viable output for the input used. If all dairy farms became eco-efficient, an average dairy farm could raise its output by about 6% using the existing technology. According to the projected scores, farmers might improve their eco-efficiency by 10% on average without using more inputs in a static condition. Policymakers should encourage dairy farms to share information with the best-performing dairy farms on how to improve production while considering environmental concerns.

Water Use Efficiency and Productivity of Irrigated Rice Cultivation in Nigeria: An Application of the Stochastic Frontier Approach

In the face of declining water resources and low agricultural water productivity, it is vital to increase agricultural production efficiency and efficiency of water usage. The efficacy of irrigating rice fields in Nigeria is evaluated here using a stochastic frontier analysis. This is a parametric frontier that is assumed to have half-normal distribution, allowing the model to be separated from normal errors in a composite error model. Samples of 382 surveys were used in the study; out of the total number, 361 surveys were retrieved and used for the analysis. The analytical tools used in the study are: gross margin, water productivity analysis, and stochastic frontier approach. The results indicate an average yield of 4.69 and 4.94 tons/hectare, and net farm income of $415 and $364 for the farmers using canal irrigation and farmers using tube wells, respectively. The results also showed physical and economic water productivity of 0.51 kg/m3 and $0.11/m3 for canal water users, and 0.568 kg/m3 and $0.10/m3 for tube well users. The canal water users had a mean irrigation water use efficiency of 0.76, compared to 0.70 for the tube well users. The study recommends that effective extension services and their coverage be enhanced to provide adequate training to rice farmers on water use efficiency and the transfer of innovations and farming technologies to farmers.

Testing specification of distribution in stochastic frontier analysis

Stochastic frontier analysis is regularly used in empirical studies to evaluate the productivity and efficiency of companies. A typical stochastic frontier model involves a parametric frontier subject to a composite error term consisting of an inefficiency and a random error. We develop new tests for specification of distribution of the inefficiency. We focus on simultaneous relaxation of two common assumptions: (1) parametric frontier which may lead to false conclusions when misspecified, and (2) homoscedasticity which can be easily violated when working with real data. While these two issues have been extensively studied in prior research exploring the estimation of a stochastic frontier and inefficiencies, they have not been properly addressed in the considered testing problem. We propose novel bootstrap and asymptotic distribution-free tests with neither parametric frontier nor homoscedasticity assumptions, in both cross-sectional and panel settings. Our tests are asymptotically consistent, simple to implement and widely applicable. Their powers against general fixed alternatives tend to one as sample size increases, and they can detect root-n order local alternatives. We demonstrate their efficacies through extensive simulation studies. When applied to a banking panel dataset, our tests provide sound justification for the commonly used exponential specification for banking data. The findings also show that a new parametric frontier model is more plausible than the conventional translog frontier.

Determining Technical and Resource-Use Efficiency in Rice Production in East Java

This study aimed to determine the technical and resource-use efficiency of East Java. The secondary data were used from the Paddy Cultivation Household Survey ST2013 handled by BPS-Statistics Indonesia. The data was cross-sectional and were derived from ST2013 in 2014. The stochastic frontier analysis analyzed the factors that drive rice output and quantified rice production's technical efficiency. In contrast, the marginal value product-marginal factor cost (MVP-MFC) approach was used to quantify resource-use efficiency in rice production. The SFA indicated that these factors positively affect rice output except for seed, fertilizer, labor, and land utilization. However, other factors were considered apart from the land size, such as exaggerated land and labor advantage in production and bad seed and fertilizer utilization. Technical efficiency varies considerably among rice farmers, ranging from 1 percent to 100 percent, with an average of 89 percent. Their technical inefficiency was influenced by their group membership, irrigation, credit, education level, and farmer age - external farm insect pests. The government and the private sector are involved in the programs through farmer groups. Keywords: agricultural production, allocative efficiency, resource-use efficiency, parametric frontier, ST2013, technical efficiency

Technical efficiency and its determinants: Paddy farming in Mahakanumulla cascade system

Paddy farming is predominantly practiced in the dry zone of Sri Lanka. Most paddy lands in the dry zone belong to traditional hydrological cascade systems known as Village Tank Cascade Systems (VTCS) and paddy lands receive irrigation water from the tanks in VTCS. Land is a scarce resource for agriculture in Sri Lanka. Therefore, it is important to achieve high efficiency in paddy farming to increase paddy production in the country. A paddy farm is technically efficient if it is producing the maximum output using the minimum quantities of inputs, such as labour, capital, and technology. This study examines technical efficiency of paddy farmers in Mahakanumulla VTCS and its determinants. The technical efficiency of the farmers is estimated using parametric frontier technique; the Stochastic Frontier Analysis (SFA). In the first stage of the analysis a production function is estimated using the Maximum Likelihood Estimator. In the second stage, an inefficacy model is estimated with plot size, age, experience, household size, full time farming, and land ownership status as determinants of technical inefficiency. According to the results, the average technical efficiency of paddy farmers in Mahakanumulla VTCS is 92.3%. Only the plot size, experience, and household size are positively related to technical inefficiency and significant at 10%. According to the study findings, the technical efficiency of paddy farmers in Mahakanumulla VTCS does not vary significantly from the most efficient farmer in the area. This could be due to the fact that in the VTCS, farmers are operating under more homogenous conditions. However, it does not indicate that paddy farmers in Mahakanumulla VTCS are highly productive as results only reveal the technical efficiency level of paddy farmers in comparison to the most efficient paddy farmer in the area. Therefore, it is important that productivity improvements are continuously carried out.

Effect of Liquidity and Capital on Risk-Adjusted Efficiency of Banks in Emerging Economies: Evidence From Ghana

The performance of the banking industry plays a crucial role in achieving sound and accelerated economic growth. This study aims to estimate the risk-adjusted cost and profit efficiencies of banks in Ghana, to assess the effect of liquidity and capital on the estimated risk-adjusted efficiencies. The study employs the parametric (SFA) frontier over the period 2009 – 2018. The results reveal that increase in bank liquidity results in an increase in both risk-adjusted cost efficiency and risk-adjusted profit efficiency. High levels of bank capital are also associated with increases in both risk-adjusted cost efficiency and risk-adjusted profit efficiency.

Efficiency determination of the trout farm units using a deterministic parametric frontier (DPF) analysis method in Lorestan province (case study of Alshtar city)

Efficiency determination of the trout farm units using a deterministic parametric frontier (DPF) analysis method in Lorestan province (case study of Alshtar city)

Fiscal decentralization and efficiency of public services delivery by local governments in Ghana

AbstractIn this paper, we estimate the efficiency of Metropolitan, Municipal and District Assemblies (MMDAs) in Ghana, and investigate the impact of fiscal decentralization on the efficiency of local public goods and services delivery by MMDAs. Using data from composite budgets of all 216 MMDAs, we employ both non‐parametric and parametric frontier methods to carry out the study. The results with regard to our two indicators of fiscal decentralization indicate that fiscal autonomy proxied by MMDAs’ internally generated funds as a share of their total revenue has a positive influence on the efficiency of MMDAs whilst vertical imbalance—a high share of central government grants in MMDAs’ total expenditure—does not improve the delivery of local goods and services by MMDAs in Ghana. The findings indicate a clear signal to policy managers to prioritize support to MMDAs in the mobilization of internally generated revenue.

Efficiency in the transformation of schooling into competences: A cross‐country analysis using PIAAC data

AbstractThis study (i) compares the competence levels of the adult population in a set of OECD countries; (ii) assesses the comparative efficiency with which the education system in each country transforms schooling into competences, distinguishing by educational level, and (iii) tracks the evolution of this efficiency by birth cohorts. Using PIAAC data, the paper applies standard parametric frontier techniques under two alternative specifications. The results obtained identify Finland, Sweden, Denmark and Japan as being the most efficient and Spain, the United Kingdom, Italy, Ireland and Poland as the least efficient.

How efficient is maize production among smallholder farmers in Zimbabwe? A comparison of semiparametric and parametric frontier efficiency analyses

ABSTRACTThe controversial Fast Track Land Reform Programme in Zimbabwe that redistributes commercially-owned farmland to smallholder households has caused concerns about the efficiency of agricultural production in the country. In this paper, we estimate the efficiency of resource use among smallholder farmers in Zimbabwe when producing maize, the staple crop in the country. Using both a semiparametric model and a fully parametric stochastic frontier model, we find significant production shortfalls for smallholder maize production. While labor, capital, and land all significantly affect the total output, the estimated mean efficiency score for farms with less than 10 hectares of land (A1) appears to be under 0.75, and for the entire sample (A1 and A2) it ranges between 0.595 and 0.772. There clearly exists a great potential for maize farmers to improve the technical efficiency and increase the total output. Gender and age of the household head, access to extension services, and activities of other crops significantly affect the technical efficiency of smallholder maize production in Zimbabwe. We also find that all farms operate under increasing returns to scale and that the technical efficiency score tends to increase with the level of output.

Re-Examining Regional Total-Factor Water Efficiency and Its Determinants in China: A Parametric Distance Function Approach

It is accepted that improving water efficiency is a key task for China in achieving water sustainability, as the knowledge of water efficiency and its determinants can provide critical information for water policy formulation. To this end, this paper presents a parametric frontier approach to analyze water efficiency performance and its influencing factors in one step. The proposed approach first introduces the Shephard water distance function to construct total-factor water efficiency (TFWE) index and then adopts the stochastic frontier analysis (SFA) technique to compute the index and its determinants. A case study of regions in China from 2000 to 2015 is presented. The main findings are summarized as follows: (1) Both the overall China and most of the regions still have room for improvement in water efficiency. SFA and data envelopment analysis (DEA) might lead to different results in benchmarking water efficiency. Moreover, SFA has higher discriminating power than DEA in this regard. (2) There exists significant disparity of water efficiency among the regions of China, and the difference in TFWE takes on a U-shaped evolution trend, which first decreases in a fluctuation way and then increases monotonically. (3) Factors like industrial structure, import and export trade, environmental regulation and urbanization level have a positive impact on water efficiency, while resource endowment and economic level exhibit negative and nonlinear effects, respectively. Finally, several policy recommendations are made to improve water efficiency levels and promote water sustainability.

Adequacy of deterministic and parametric frontiers to analyze the efficiency of Indian commercial banks

This study applies data envelopment analysis and the stochastic frontier approach to a sample of Indian commercial banks to discuss the inconsistencies between these models. We find that DEA average efficiency scores are, in general, lower than those from the SFA model. However, both models indicate similar trends on efficiency scores over the years, which we state is more relevant than efficiency levels themselves. We also find that the rank correlation between these efficiency scores is low. This means that the application of only one frontier model may yield misleading conclusions. We point out that a thorough consideration of the suitability of a deterministic or a parametric frontier to the framework in analysis should guide the choice between the application of parametric or non-parametric methodologies.

Efficiency in the Transformation of Schooling Into Competences: A Cross-Country Analysis Using PIAAC Data

This study (i) compares the competence levels of the adult population in a set of OECD countries; (ii) assesses the comparative efficiency with which the education system in each country transforms schooling into competences, distinguishing by educational level, and (iii) tracks the evolution of this efficiency by birth cohorts. Using PIAAC data, the paper applies standard parametric frontier techniques under two alternative specifications. The results obtained under both specifications are similar and identify Finland, Sweden, Denmark and Japan as being the most efficient and Spain, the United Kingdom, Italy, Ireland and Poland as the least efficient. The evolution of the efficiency levels by age cohorts shows that higher education is more efficient for younger cohorts, while lower and upper secondary education present a stable trend over cohorts.

Efficiency in the Transformation of Schooling into Competences: A Cross-Country Analysis Using PIAAC Data

This study (i) compares the competence levels of the adult population in a set of OECD countries; (ii) assesses the comparative efficiency with which the education system in each country transforms schooling into competences, distinguishing by educational level, and (iii) tracks the evolution of this efficiency by birth cohorts. Using PIAAC data, the paper applies standard parametric frontier techniques under two alternative specifications. The results obtained under both specifications are similar and identify Finland, Sweden, Denmark and Japan as being the most efficient and Spain, the United Kingdom, Italy, Ireland and Poland as the least efficient. The evolution of the efficiency levels by age cohorts shows that higher education is more efficient for younger cohorts, while lower and upper secondary education present a stable trend over cohorts.

English

Tunisia olive production fluctuates yearly because it is highly dependent on annual precipitation, and growers need to enhance productivity and efficiency by introducing irrigation. Investigating how irrigation affects the technical efficiency of olive production may contribute to improvement in productivity. This study employs the Data Envelopment Analysis (DEA) and Stochastic Frontier Analysis (SFA) methods to estimate non-parametric and parametric frontiers for a sample of Tunisian olive orchards. It identifies factors which determine variations in technical and scale efficiencies among orchards. The DEA results show that average output-oriented technical efficiency under constant returns to scale (CRS) and variable returns to scale (VRS) is 8.9 and 17.8%, respectively. The SFA results show that average technical efficiency of the half-normal model with constant returns to scale is estimated at 81.2%, indicating Tunisian olive growers can raise output by an average of 18.8% by improving technology and using fewer inputs. Average technical efficiency in irrigated orchards under the DEA approach was higher than in irrigated ones while irrigated orchards under the SFA approach was less technically efficient than non-irrigated ones. However, the test results of mean difference indicate that average VRS technical and scale efficiencies in irrigated orchards under the DEA approach were not significantly higher than in non-irrigated ones. On the other hand, technical rather than scale inefficiency is the major source of overall inefficiency in irrigated orchards because room for improvement in technical efficiency was larger than in scale efficiency. These results suggest that Tunisian olive growers should raise output and efficiency by introducing more advanced technologies for improving the performance of irrigation systems. Key words: Olive orchards, technical efficiency, scale efficiency, irrigation, Tunisia.

THE ISLAMIC BANKING AND THE ECONOMIC INTEGRATION IN ASEAN

The efficiency level of the banking industry is the most important indicator to identify the soundness of banking system. This paper use non parametric frontier approach, DEA, to analyze the Islamic bank efficiency in ASEAN. We use price of deposit from customers, deposits and placements of banks, labor, and others operational expenditures as control variabel, and using financing, deposits and placements on other insitution, securities, others investment as output variabel. We found that the mix bank is the most efficient group within the observation period. Furthermore, the average Islamic banking efficiency in Indonesia, on intermediation approach, is lower than the average of ASEAN, unless they can reduce the cost of labor and other operational expenses. This paper also examines the determinant of efficiency of the Islamic Banking in ASEAN. Internal factors are Total Aset, ROA, BOPO, and ETA, and external faktor are Market Power and Inflation. Using Tobit regression, the result shows the factors that most influence to the Islamic banking efficiency in Indoneisa is the total size of the bank or its assets, OPEX/OR, and Market Power.

Frontier Analysis

This article presents a comprehensive review of frontier studies in the tourism literature. We discuss the main advantages and disadvantages of the various frontier approaches, in particular, the nonparametric and parametric frontier approaches. The study further differentiates between micro and macro applications of these approaches, summarizing and critically reviewing the characteristics of the existing studies. We also conduct a meta-analysis to create an overview of the efficiency results of frontier applications. This allows for an investigation of the impact of frontier methodology on tourism research. The present review also highlights the limitations of existing studies and suggests an agenda for future research.

Comparative Analysis of Total Factor Productivity Growth of Indian Public Private and State Owned Power Generating Plants: A Stochastic Frontier Approach

The objective of this study is to measure the efficiency improvement level and productivity growth of the coal-based thermal power stations in India for regulatory purposes using Stochastic Frontier Analysis, and employing data set covering period of 2002-03 to 20010-11 via power plant specific variables to capture the effect of different characteristics of power plants on inefficiency levels. The results show significant potentials for efficiency improvement in the Indian thermal power stations. Apart from comparing the efficiency and productivity growth among different plants, the study examined the causes of technical inefficiencies, and sources of productivity change, such as technological change and pure technical efficiency change. The application of the parametric production frontier models to Indian power generation industries can be used as a tool for policy makers. Improving the efficiency of coal-based power plants plays a significant role in enhancing the performance of India‘s power sector. It allows for increased consumer benefits through cost reduction, while enhancing energy security and helping reduce local and global pollution through more efficient coal use.