Efficiency Dynamics and Productivity Analysis of Manufacturing Industries in Bangladesh

Abstract

In this study we use the stochastic frontier model in estimating total factor productivity (TFP) growth and technical efficiencies for manufacturing industries in Bangladesh by using surveys collected during five rounds in 1982/83, 1984/85, 1988/89, 2005/06 and 2012. To detect the source of growth, we further decompose Total Factor Productivity growth into efficiency growth, scale component, and technological progress. Our result establishes that, on average, technical efficiency was 80%, noting that the export focused industries are comparatively more efficient than non-export focused industries. Furthermore, medium, and large-scale industries have a lower TFP growth than small scale industries. Furthermore, the Total Factor Productivity growth estimations shows that productivity in the manufacturing industries in Bangladesh was approximately 5.5% in the review period illustrating that technological progress is a major driver of growth. Additionally, this study provides evidence on the likelihood of TFP growth convergence over time among the manufacturing industries in Bangladesh.