Stochastic Frontier Method Research Articles

Assessing the Impact of Leverage Ratio on Banking Efficiency in Indonesia

This study analyzes the significance of the leverage ratio on the efficiency of banking companies with the aim of assessing the readiness and suitability of banking companies in facing the implementation of Basel 4 or Basel 3.1. Data from 47 banking companies in Indonesia from the period 2008 to 2023 were used as material for this study. The data used in the research were analyzed using the Dynamic Stochastic Frontier (DSF) method. This method allows for more accurate efficiency analysis by avoiding assumptions of technology at different times. The researchers hypothesize that banking companies with a leverage ratio level higher than the minimum limit applied in BASEL have better efficiency, and the results of this study show corresponding results within the leverage ratio limit of 20%.

Ultra-High-Voltage Construction Projects and Total Factor Energy Efficiency: Empirical Evidence on Cross-Regional Power Dispatch in China

Optimizing cross-regional energy dispatch is crucial for addressing regional energy resource imbalances and significantly enhancing energy utilization efficiency. This study aims to analyze the potential impact of China’s ultra-high-voltage (UHV) construction on firms’ total factor energy efficiency and provide empirical evidence supporting the role of cross-regional energy dispatch in improving firms’ energy efficiency. The construction of UHV infrastructure has become a vital part of China’s “New Infrastructure” projects, presenting a “Chinese solution” to the global challenge of regional energy resource mismatches. This study employs an enhanced two-step stochastic frontier method to quantify firms’ total factor energy efficiency and utilizes a difference-in-differences model to evaluate the impact of inter-regional electricity dispatch on this efficiency. The empirical analysis results indicate that UHV construction projects increase the total factor energy efficiency of regional firms by an average of 0.45%, which significantly contributes to firms’ total factor productivity. This conclusion remains valid after a series of robustness tests. Furthermore, the heterogeneity analysis results indicate that the UHV construction project increases the total factor energy efficiency of non-energy-intensive industries by 0.49%, and significantly enhances the total factor energy efficiency of the manufacturing industry by 0.94%. However, it has no significant effect on energy-intensive industries or non-manufacturing enterprises. Additionally, the mechanism analysis shows that UHV construction projects affect total factor energy efficiency through three pathways: industrial structure adjustment, urban innovation, and clean energy transition. This study offers insights for addressing regional energy spatial mismatches and provides policy recommendations for developing a new energy system aligned with regional needs.

Exploring the influence of internet technology adoption on the technical efficiency of food production: insight from wheat farmers

Digital technology plays a crucial role in advancing sustainable farming and ensuring food security, especially in developing countries. This study evaluates the impact of Internet technology usage on technical efficiency in crop productivity, using data from 600 wheat farmers in rural Pakistan. It addresses the imperative need to enhance agricultural practices within the context of sustainable food production. To achieve this, a matched sample of Internet users and non-users was formed through propensity score matching. The study employs the stochastic frontier method with sample selection adjustment, ensuring a robust evaluation of technical efficiency between these groups. The findings reveal a positive influence of Internet usage on efficiency, persisting even after mitigating self-selection bias from observed and unobserved factors. Internet users exhibit a technical efficiency score of 0.62, surpassing the 0.55 score of non-users. Quantile regression analysis exposes varying impacts of Internet usage on technical efficiency, with less efficient farmers experiencing substantial improvements. Widespread Internet adoption holds the potential to significantly enhance agricultural production for growers. The research underscores the role of promoting Internet utilization to stimulate growth and improve farming efficiency within the evolving digital economy. Policymakers are advised to promote the adoption of modern technology to enhance crop production and support economic growth.

Efficiency of the Integrated Production Systems: Evidence from the Winegrowing Firms in Italy

In Italy, the environmental sustainability of the agricultural sector is regulated by the National Integrated Production Quality System. It is the foundation of the regional Integrated Production Regulations (IPRs), which identify voluntary agronomic strategies on the use of pesticides, fertilisers, and irrigation water, as well as on soil and plant management. The aim is a reduction in the environmental impacts of the agricultural processes and an increase in the production quality. However, the direct relationship between environmental and economic sustainability of the regional IPRs is not obvious and its absence could weaken the economic efficiency of firms. The study, through the stochastic frontier (SF) method, investigates the possible inefficiencies of the regional winegrowing firms that voluntarily adhere to the Apulian IPRs. The results highlight that some measures in the IPRs aimed at preserving the local agroecosystems (soil management and use of resistant varieties) are efficient, therefore allowing for an increase in the production value and quality. On the contrary, crucial measures concerning the management of irrigation water and pesticides decrease efficiency. Thus, more thoughtful measures are requested by policy makers to improve the economic impacts of the regional IPRs on firms and to make possible a certain convergence between environmental and economic sustainability.

On the productivity and technical efficiency of the Puerto Rican queen conch Aliger gigas fishery

AbstractObjectiveThis study examines the productivity and technical efficiency (TE) of diving operations that target queen conches Aliger gigas in the Commonwealth of Puerto Rico, the largest producer of queen conches in the United States. Currently, there is a proposal to list queen conch as threatened under the Endangered Species Act (ESA).MethodsWe use stochastic production frontier methods to investigate the relationship between catch and fishing inputs and the technical performance of diving operations.ResultOur results show that the fleet could increase its catches, on average, by 30% (and, thus, increase its income) by using existing fishing inputs and technology more efficiently. We find that the potential to expand catches was slightly higher from increasing the crew size than from extending the length of the fishing trip. The study also finds considerable heterogeneity across coastal regions and operation sizes. Overall, operations on the east and west coasts and those having three or more crew members were more efficient. Operations that use a single gear and specialize on few species (revenue concentration) were associated with higher levels of TE. We also find that diving operations exhibit decreasing returns to scale.ConclusionThe potential ESA listing of the queen conch poses a dilemma because increasing the efficiency of the fleet may continue to compromise the sustainability of the resource. While a threatened designation does not necessarily result in additional trade or harvest restrictions, further actions may be advisable given the many threats, such as overutilization, habitat loss, coastal pollution, and disruptive environmental change that queen conch populations face. Our model suggests that reducing the size of the crew and/or the length of the trip may increase efficiency, but these restrictions may not be advisable on safety grounds. Thus, management agencies may want to reassess existing trip limits and the length of the closed season and explore the use of closed areas.

Improve energy use efficiency through free trade policy: evidence from the establishment of free trade zones in China.

In the context of increasing global resource and environmental problems, it is of great practical significance to accurately test the impact of various factors on energy use efficiency for maintaining national energy security and formulating relevant policies. This paper measures firms' total factor energy efficiency (TFEE) using the two-stage stochastic frontier method within the data envelopment analysis (DEA) framework, leveraging data from listed firms in China spanning 2010 to 2022. Employing the establishment of free trade zones (FTZs) as a quasi-natural experiment, we apply the staggered differences-in-differences (DID) and stacked DID methods and analyze the impact of FTZs on firms' TFEE. The results show that the establishment of FTZs significantly promotes the improvement of firms' TFEE, and it has a greater promotion effect on heavily polluting, non-manufacturing, state-owned, private, and small-scale firms. The results of the mechanistic analysis showed that the promotion effect of FTZs on firms' TFEE is mainly realized through three channels: increasing government subsidies, reducing the financing constraint effect, and encouraging the technology innovation effect. Furthermore, industry-level decomposition results indicate that the surge in industry energy efficiency primarily results from improvements within firms rather than inter-industry variations. This paper's results propose that countries can enhance energy efficiency by progressively endorsing the implementation of FTZs.

New evidence of the driving forces behind Brazil's agricultural TFP growth—A stochastic frontier analysis with climatic variables and land suitability index

AbstractUsing panel data from 510 Brazilian micro‐regions in three census years (1995, 2006 and 2017), this study presents a productivity decomposition for the Brazilian agricultural sector using stochastic production frontier methods that account for the effects of rainfall, temperature and the land suitability index. We also calculated the total factor productivity (TFP) index and decomposed it into technical efficiency, technological change, scale efficiency and environmental efficiency. This article thus provides a new and more realistic assessment of recent Brazilian agricultural productivity growth. In recent decades, Brazilian agriculture has become widely known for presenting fast productivity growth; however, our results suggest that a lower TFP growth rate than previous estimates (1.96% per annum) and the overall effects of climate change could potentially compromise Brazilian agricultural TFP growth in the long run. Our findings might thus generate insights for agricultural and regional policies to increase efficiency in the sector and promote sustainable agricultural development in Brazil, which will contribute to the sector's competitiveness in international markets, the country's social and economic welfare, and environmental conservancy.

Technical efficiency of the Family Health Program (Psf) on the health of vulnerable municipalities in the northeast region, Brazil

The objective of this study was to analyze the technical efficiency of the Family Health Program (PSF) in the health indicators of the most vulnerable municipalities in the Northeast region. For this, the stochastic frontier method was used. The results showed that the variables related to the PSF (Consultations and PSF Team) were efficient in reducing total and infant mortality; as well as the variables GDP per capita and presence in the Mais Médicos Program (PMM) in the region

Cross country comparisons of environmental efficiency under institutional quality. Evidence from European economies

PurposeThe paper aims at addressing the following research questions: does institutional quality improve countries' environmental efficiency? And which pillars of institutional quality improve countries' environmental efficiency?Design/methodology/approachBy specifying a directional distance function in the context of stochastic frontier method where GHG emissions are considered as the bad output and the GDP is referred as the desirable one, the work computes the environmental efficiency into the appraisal of a production function for the European countries over three decades.FindingsAccording to the countries' performance, the findings confirm that high and upper middle-income countries have higher environmental efficiency compared to low middle-income countries. In this environmental context, the role of institutional quality turns out to be really important in improving the environmental efficiency for high income countries.Originality/valueThis article attempts to analyze the role of different dimensions of institutional quality in different European countries' performance – in terms of mitigating GHGs (undesirable output) – while trying to raise their economic performance through their GDP (desirable output).HighlightsThe paper aims at addressing the following research question: does institutional quality improve countries' environmental efficiency?We adopt a directional distance function in the context of stochastic frontier method, considering 40 European economies over a 30-year time interval.The findings confirm that high and upper middle-income countries have higher environmental efficiency compared to low middle-income countries.The role of institutional quality turns out to be really important in improving the environmental efficiency for high income countries, while the performance decreases for the low middle-income countries.

Estimating COVID-19 under-reporting through stochastic frontier analysis and official statistics: A case study of São Paulo State, Brazil

During outbreaks, natural disasters, and any unexpected event, it is usual that public authorities face issues tracking the outcomes, and the available reports of casualties tend to be lower than actual numbers. Using weekly data at the municipality level in São Paulo State (the most densely populated region in Brazil), we employ stochastic frontier methods to fit the dynamics of the COVID-19 outbreak spanning from March 2020 to December 2021. The empirical model incorporates the inverse hyperbolic sine transformation to address the issue of zero reporting of COVID-19 deaths. Furthermore, we utilize a flexible frontier method to capture the S-shaped epidemic curve in two distinct waves of infections/deaths. Our results reveal that the actual death toll resulting from COVID-19 is, on average, 1.24 times higher than the officially reported figures. Consequently, these findings hold significant implications for public authorities in identifying regions characterized by substantial under-reporting of COVID-19 fatalities. Moreover, this study presents an empirical framework that can be used for other municipalities, states, or countries confronting outbreak scenarios.

Impact of social networks on fertilizer use efficiency in China: Evidence from kiwifruit production in Shaanxi province.

Improving fertilizer use efficiency (FUE) is an effective way to reduce the fertilizer use and non-point source pollution in agriculture production in China. Existing research related to fertilizer use efficiency ignores the impact of famers' social networks, which can significantly affect the fertilizer use and its efficiency. This paper analyzed the impact of social networks on fertilizer use efficiency and the mediator effect of green fertilization technology adoption, based on the calculation of fertilizer use efficiency of 569 kiwifruit farmers in Shaanxi province of China surveyed in 2021 by using stochastic frontier method. The results show that the FUE of kiwifruit production ranged within 0.1027-0.9945, with an average value of 0.333, which showed great variability, and fertilizer input had an average 66.7% reduction potential without reducing output. Social networks and its four dimensions all had a significant positive impact on FUE, in which network trust and network learning had a greater impact on FUE. Farmers' adoption of green fertilization technology played a positive mediator effect in the process of social networks influencing their fertilizer use efficiency, which was mainly promoted by network trust and learning. Farmers' experience in agricultural production, joining the cooperative, the quantity of village agricultural supply points had a significant positive impact on fertilizer use efficiency, while age and gentle of the head of household had a significant negative impact of fertilizer use efficiency. Planting scale had a U-shape impact on FUE. Policies aimed at improving FUE and reducing non-point source pollution should, therefore, focus on improving the social networks of farmers, especially young farmers, strengthening network trust, promoting network learning, network reciprocity and network interaction, strengthening the research and development and extension of green fertilization technology, encouraging farmers to join agricultural cooperative, improving village production conditions, guiding sustainable agricultural production.

An analysis of urban residents’ efficiency in paying for water services delivered by municipalities: A case of Chinhoyi Town, Zimbabwe

Chinhoyi urban local authority is failing to deliver obligated services such as water provision to residents, citing unavailability of funds due to non-payment by the residents as the main cause. This research aims at establishing whether or not this deterioration in water provision is indeed due to non-payment by citizens. Ten households were randomly selected from each of the sixteen residential areas in Chinhoyi. Each of the households was given a questionnaire to complete and the responses were analysed using Limdep and SPSS. The efficiency of residents in paying for water services was estimated using the Stochastic Frontier method. The factors that were used in the model were either quantitative or ordinal-qualitative. A likert-scale with ratings 1 to 5 was used for the ordinal factors. Results show that residents are paying for the water services provided by the municipality, suggesting that the poor supply of water by the Chinhoyi municipality is not due to non-payment by citizens. These results imply that revenue being collected from residents is either not sufficient for the provision of water or has a part that is being directed elsewhere. It was also established that water quantity, amount charged, household income, opportunism and inability significantly affect the amount of revenue paid to the municipality by the residents. The effect of opportunism and inability was, however, negative. Implying that an increase in each of the two factors reduces both the amount that a household will pay and the efficiency of the individual household.

The technical efficiency of chrysanthemum flower farming: A stochastic frontier analysis

Over the years, improvements in standard of living and well-being have resulted in an increase in the demand for chrysanthemums, however, the recent COVID-19 pandemic has resulted in a fall in demand. As a result, this study investigates the technical efficiency of chrysanthemum farming and its major determinants. The study was conducted in Bumiaji Village, Bumiaji District, Batu, East Java, Indonesia between January and September 2022. Data was collected via interviews with chrysanthemum farmers using a questionnaire. A total of 35 chrysanthemum farms were selected using random sampling technique. The data was then analyzed using the stochastic frontier method combined with Maximum Likelihood Estimation (MLE). The results reveal that the efficiency of chrysanthemum farming is dominated by 0.91 to 0.93. (65.71 percent). Since technical efficiency is close to one, most chrysanthemum farmers are close to achieving maximum efficiency. The technical efficiency of chrysanthemum blooms was influenced by land area, inorganic fertilizers, organic fertilizers, and pesticides, but not by seeds or labor. The land area negatively impacts technical efficiency, implying that increasing land size decreases technological efficacy of chrysanthemum farming. Inorganic fertilizers, organic fertilizers, and pharmaceuticals have a positive effect or contribute to an increase in inorganic fertilizers, organic fertilizers, and pesticides. In terms of technical efficacy, chrysanthemum cultivation is close to its zenith. It is not necessary to exert effort to reach this ideal land, but inorganic fertilizers, organic fertilizers, and pesticides can assist.

The Convergence between Digital Industrialization and Industrial Digitalization and Export Technology Complexity: Evidence from China

The wave of digitalization is driving the restructuring of the global value chain, providing an excellent opportunity for China to leapfrog into the digital era. The convergence between digital industrialization and industrial digitalization (hereinafter referred to as CDIID) is an indicator to measure the sustainability of the digital economy. The main objective of this paper is to measure the level of CDIID in China and verify the impact of CDIID on export technology complexity and its mechanism. The nonparametric stochastic frontier method is used to measure the level of CDIID of each province in China from 2013 to 2019, and the fixed-effect model is used to investigate the impact effect and mechanism of CDIID on export technology complexity. Empirical research finds that the level of CDIID plays a positive role in promoting the export technology complexity, and in the short term, more attention should be paid to the development of industrial digitalization to enhance export technology complexity. The mechanism test results show that CDIID enhances export technology complexity through the channels of industrial structure upgrading and innovation ability improvement. In terms of industrial digitalization driven by digital industrialization, the channel of innovation ability improvement has a significant impact. In terms of the path of industrial digitalization to promote digital industrialization, it has an inhibitory effect on both channels in the short run. This paper provides empirical evidence and a decision-making basis for China to promote the sustainable development of the digital economy and build new advantages in international competition.

TECHNICAL EFFICIENCY ANALYSIS OF MILKFISH POND FARMING (CHANOS CHANOS F) IN JANGKA DISTRICT OF BIREUEN REGENCY

This study examines efforts to increase milkfish production through technical efficiencycarried out in the District of Jangka, Bireuen Regency. The population was all milkfish pond farmers in the Jangka District, and the number of samples in this study were 78 milkfish pond farmers using a random sampling method. This research uses primary data and secondary data. Data were analyzed using the stochastic frontier method and analyzed descriptively qualitatively. The research objective is(1) analyze the factors of land area, labor, logs, fertilizers, feed and pesticides for milkfish pond farming, and (2)analyzethe level of technical efficiency of milkfish pond farming in the Jangka District of Bireuen Regency.The research results are therethe five production factors of milkfish pond farming, namely land area, labor, spindles, fish feed and pesticides which have a significant effect on milkfish production while the fertilizer variable has no significant effect on milkfish production. On average, milkfish pond farmers in the Jangka District of Bireuen Regency are technically efficient. However, farmers still have the opportunity to further increase efficiency, through the use of production factors according to their needs.It is recommended for further research to use more diverse variables so as to provide better results.

Effect of Reforms on Technical Efficiency of Electricity Production in Kenya Relative to Other Developing Countries

The current structure of the Kenyan electricity sector has resulted from many changes brought about by both donor and government driven reforms. The sector which was once run as a government owned monopoly is now a more market-oriented entity. The reforms have resulted in splitting of generation, transmission and distribution into independent entities, establishment of an independent regulatory authority, private sector participation in generation and institution of other complementary entities. One of the drivers of these reforms was the need to improve the economic performance of the sector to make it capable of supporting the economy. This study uses Data Envelopment analysis and stochastic frontier methods to analyse the effect of the reforms on the efficiency of Kenya’s power sector in relation to other countries in similar stage of development. The findings reveal that Kenya’s Power sector has been experiencing positive changes in technical efficiency over the period after the reforms. The countries which have undertaken reforms, to a larger extent, appear to be more efficient. However, they experience huge system losses which need to be reduced to better the sector’s efficiency Keywords : Reforms, Technical efficiency, Data envelopment analysis, Stochastic frontier analysis DOI: 10.7176/JESD/14-4-03 Publication date: February 28 th 2023

Effect of Reforms on Technical Efficiency of Electricity Production in Kenya Relative to Other Developing Countries

The current structure of the Kenyan electricity sector has resulted from many changes brought about by both donor and government driven reforms. The sector which was once run as a government owned monopoly is now a more market-oriented entity. The reforms have resulted in splitting of generation, transmission and distribution into independent entities, establishment of an independent regulatory authority, private sector participation in generation and institution of other complementary entities. One of the drivers of these reforms was the need to improve the economic performance of the sector to make it capable of supporting the economy. This study uses Data Envelopment analysis and stochastic frontier methods to analyse the effect of the reforms on the efficiency of Kenya’s power sector in relation to other countries in similar stage of development. The findings reveal that Kenya’s Power sector has been experiencing positive changes in technical efficiency over the period after the reforms. The countries which have undertaken reforms, to a larger extent, appear to be more efficient. However, they experience huge system losses which need to be reduced to better the sector’s efficiency Keywords: Reforms, Technical efficiency, Data envelopment analysis, Stochastic frontier analysis DOI: 10.7176/JETP/13-1-03 Publication date: January 31 st 2023

Fiscal Decentralization and the Efficiency of Public Service Delivery - A Case Study of Homabay County

This study aims to examine how fiscal decentralization affects the effectiveness of public service delivery in Homabay County. It uses a stochastic frontier method to estimate time-varying efficiency coefficients and investigates the effects of fiscal decentralization on those efficiency coefficients. The results show that, in some cases, fiscal decentralization can increase the effectiveness of public service delivery. Initially, the decentralization process needs appropriate political and institutional conditions or goodwill. Second, it would seem that good outcomes call for a high enough degree of expenditure decentralization. Third, there must be sufficient decentralization of both revenue and expenditure. Lastly, fiscal decentralization could make public service delivery less effective if these conditions are not met. The paper recommends the need for developing countries to adopt fiscal decentralization because it helps subnational governments raise revenues through enhancing tax administration and collection by the government as well as taxpayer compliance. It also supports legislation and policy changes that give subnational governments more fiscal authority.

ESTIMATION OF WHEAT FLOUR PRODUCTION FUNCTION IN A STOCHASTIC FRONTIER ANALYSIS FOR THE YEAR 2019 BAGHDAD GOVERNORATE CASE STUDY

The study aimed to estimate a stochastic frontier production function and the inefficiency function for the production of wheat flour, in addition to estimating the technical efficiency of flour mills in Baghdad Governorate for the year 2019, as a sample of 53 mills was collected. The function was estimated in two periods according to a stochastic frontier method using the frontier 4.1 program. The results showed that the sign of the working hours parameter appeared positive and explained the positivity of the variable on the quantity of flour production in the study sample, and the value of elasticity indicates in the second stage of production stages, but its effect is not significant in the efficiency model. As for the parameter of the variable capital quantities, its sign appeared negative and was at a significant level of 1%. It indicates the presence of waste in the quantity of the input and indicates the value of elasticity in the third stage of production. As for the variable quantities of raw wheat, its parameter sign is positive and below a significant level of 1%. The elasticity value indicates that it is in the first stage of the production stages. As for the inefficiency model, the experience was the only variable that affected the model, the result of which was that the producers with little experience had a significant impact on the inefficiency model at the 10% level. As for estimating the technical efficiency, all sample mills moved away from achieving the optimum size of production. The study recommended the necessity of modernizing milling machines and allocating additional quantities of raw wheat, because the second period witnessed high levels of technical efficiency for sample mills

Agrifood system participation and production efficiency among smallholder vegetable farmers in Northern Ghana

AbstractFormalized marketing arrangements between smallholder farmers and produce buyers are gradually replacing spot market transactions in developing countries due to the rapid structural transformation of agrifood systems. This study examines the impact of agrifood system participation on the total value of vegetable production and technical efficiency (TE), using a sample of 423 vegetable farmers from Northern Ghana. We employ propensity score matching and W. Greene's selection bias‐corrected stochastic production frontier methods to correct for observable and unobservable selection bias issues, respectively. We further use a metafrontier model to derive technology gap ratios (TGRs) and meta‐TE for agrifood system participants and nonparticipants. The results reveal that agrifood system participants are about 50% more productive than nonparticipants. In addition, participants have higher meta‐TE (58% vs. 55%) and TGR (98% vs. 94%) than nonparticipants. Variables such as farmer group membership, extension visits, mobile phone ownership, irrigation and road access are the notable correlates of smallholder farmers' participation in agrifood systems. The total value of vegetable production is significantly influenced by fertilizer, agrochemicals, seeds, irrigation, soil fertility, and location‐fixed effects. [EconLit Citations: D24, Q12, Q18]