Efficiency of Indian Organized Manufacturing in Liberalized Regime: A Stochastic Frontier Approach

This paper attempts to estimate technical efficiency of Indian manufacturing industries across fifteen major states by estimating a time varying stochastic frontier production function and inefficiency effects model using panel data. The study covers the time period from 1993 to 2011 and reveals that there is an increasing trend of technical efficiency across the states. The Indian industrial sector recorded an average technical efficiency of 0.663. The estimated parameters of the translog production model using maximum likelihood method are statistically significant at conventional levels though their signs differ. The likelihood ratio test statistic rejects the Cobb- Douglas production technology as description of the database given the specification of the translog formulation.