Technical Efficiency of Domestic and Foreign Firms in Indian Manufacturing: A Firm Level Panel Analysis

The present paper attempted to find the firm level technical efficiency of the Indian manufacturing sector separately for the domestic and foreign firms with the use of panel data during the period from 2001-02 to 2010-11. By using the stochastic frontier analysis of Cobb-Douglas type, the finding indicated the greater mean technical efficiency of the foreign firms in the entire manufacturing sector over their domestic counterparts. The analysis at the sectoral level revealed that the mean technical efficiency of four large industry groups namely, chemical industry, machinery industry, electronics industry, and transport industry was greater for the foreign firms as compared to the domestic firms. On the other hand, the mean technical efficiency of the domestic firms was marginally greater in the food&beverage, basic metal, and textile industry groups.