Technical efficiency and input-driven growth in Indian engineering goods industry during post-reform period: stochastic frontier approach

Abstract

PurposeThe purpose of this study is to examine the performance of Indian engineering goods industry by measuring the technical efficiency and input-driven growth.Design/methodology/approachThe study used the panel data of six firms from the period of 1991–92 to 2014–15 compiled from Annual Survey of Industries (ASI), India and output-oriented econometric techniques such as pooled OLS model, and stochastic frontier approach has been applied to measure the technical efficiency.FindingsThe results suggest that the prime sources of high performance in engineering goods industry, which has recorded 8.8% output growth, are primarily contributed by inputs driven growth (8.2%) during the post-reform period, while the effect of technological change is minimal (0.1%) and technical efficiency change is negative (−0.2%). It was due to sluggishness, outdated technology and underutilization of resources in Indian economy.Research limitations/implicationsThis research paper is limited to engineering goods industry based on concorded macro data. The recommendations are that India should pursue policies and programs which may focus on technology acquisition, skill enhancement of labor, better capacity utilization, R&D and infrastructure development that may augment the technical change and technical efficiency change of the sector.Originality/valueThis research provides robust and significant estimates of technical efficiency and adds valuable insights to the existing literature by identifying the potential areas that improves the performance of Indian engineering goods industry.