Measuring Inefficiency in The Rubber Manufacturing Industry
Keywords:Technical efficiency, Technical inefficiency, Rubber industry, Firms, Stochastic Frontier Analysis
Malaysia is the fifth largest producer of natural rubber in the world after Thailand, Indonesia, Vietnam and China as well as producing rubber products exported to more than 190 countries worldwide. However, the slowdown in growth of major importers such as China, the European Union and the United States and the perception of stock surplus as output exceeds demand led to fluctuating rubber production performance over the period 2010 to 2016. Hence, this article aims at examining the level of technical efficiency (TE) and to analyze the determinants of the inefficiencies of the rubber manufacturing industry. The analysis was conducted using the latest 145 firms’ data obtained from the Department of Statistics Malaysia (DOS) and using the Stochastic Frontier Analysis (SFA) method. The results showed that the overall TE level was high while the determinants such as the capital-labor ratio, wage rate and firm size had a negative and significant impact that could reduce industrial technical efficiencies. The policy implication is that the rubber manufacturing industry needs to focus on high technological production investment, increase employee motivation through wage increment and create more strategic cooperation with international industry.
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