Estimating Total Factor Productivity and Its Components: Evidence from Major Manufacturing Industries of Pakistan

Abstract

Manufacturing sector of Pakistan accounts for 19.1 percent of GDP and is the second largest sector of the economy. It grew by 8.4 percent during 2007 as against 10 percent last year. In the manufacturing sector, large scale manufacturing (LSM), plays a vital role and accounts for approximately 70 percent of overall manufacturing [Economic Survey of Pakistan (2006-07)]. During 2006-07 relatively slower pace of expansion exhibits signs of moderation on accounts of higher capacity utilisation, difficulties in the textile sector and lower than expected scale of operations of oil refineries. A number of other factors have also contributed to the low pace of expansion in manufacturing including zero percent growth in raw cotton production which is a critical input for the textile industry, vegetable ghee and cooking oil which comprise about 5.5 percent of the LSM sector, showed uninspiring performance due to unparalleled rise in international palm and soybean oil prices. The performance of the automobile sector has been far less impressive this year as compared to previous five years due to a fall in domestic demand for cars on account of increasing auto financing rates. The higher imports of used cars in the beginning of fiscal year 2006-07 also affected the performance of domestic auto mobile sector.

Efficiency Dynamics of Sugar Industry of Pakistan.

“…The Data Envelopment Analysis (DEA) methodology was initiated by Charnes, et al (1978) who built on the frontier concept started by Farell (1957). The methodology used in this paper is based on the work of Fare, et al (1994) and Coelli, et al (1998) and Raheman, et al (2008). The DEA-Malmquist Index has been used to calculate the total factor productivity growth of sugar firms listed at Karachi stock exchange where each firm in the sugar industry is a Decision Making Unit (DMU).…”

“…We have applied the Data Envelopment Analysis (DEA) approach to the revenue producing firms by converting the financial performance measures to the firm's technical efficiency equivalents. Ee have followed the methodology of Raheman, et al (2008) which is also based on Feroz, et al (2003) and Wang (2006), who have converted the financial performance measures to the firm's technical efficiency equivalent using DuPont Model. 1 The DuPont model is a technique for analysing a firm's profitability using traditional performance management tools.…”

“…However, given the paucity of good data, this area of research has remained quite limited in Pakistan [Ali (2004)]. There are some studies on manufacturing sector of Pakistan which include Raheman, et al (2008), where TFP and its sources are estimated using Malmquist Productivity growth index for major manufacturing industries of Pakistan using aggregate firm level financial data but sugar industry is not among the industries analysed. The results of the study highlighted the role of efficiency change in the TFP growth while deficiencies in terms of technological progress.…”

“…The Dupont formula and discussion regarding conversion of financial performance measures to firm's technical efficiency equivalents can be seen inRaheman, et al (2008).…”

Productivity and Efficiency Analysis of Pakistani Textile Industry using Malmquist Productivity Index Approach

“…Furthermore, another study by Din, Ghani, and Mahmood (2007) improvised that the level of efficiency reduced in large manufacturing industries because they did not utilize the resources effectively. Some recent research (Raheman, Afza, Qayyum, & Bodla, 2008) supports the idea of both labor and capital having an impact on productivity and the research strongly stressed upon the fact that the inputs that need coverage for a greater output is both efficiency of labor and advancement in technology.…”