MEASUREMENT OF TECHNICAL EFFICIENCY USING THE DEA AND SFA METHODS: A CASE STUDY ON MALAYSIAN TRANSPORT MANUFACTURING INDUSTRY
List of Authors
  • , AMMAR-FIKREE MOHAMED JOFREE, LAI WEI SIENG, MOHD FAHMY-ABDULLAH, MOHD FAHMYABDULLAH , NORAYATI HASHIM, NORAYATI HASHIM

Keyword
  • Technical efficiency, data envelopment analysis, stochastic frontier analysis.

Abstract
  • At present, there is limited research on the state of the transport manufacturing industry in Malaysia. This article presents an analysis on the technical efficiency (TE) of the Malaysian transport manufacturing industry using the established parametric and non-parametric approaches of Data Envelopment Analysis (DEA) and Stochastic Frontier Analysis (SFA), respectively based on Department of Statistics Malaysia (DoSM) data of 611 firms between 2005 and 2010. The results showed that within the DEA approach, the Variable Return to Scale (VRS) model gave higher average efficiency than the Constant Return to Scale (CRS) model, whereas the Translog function was found to be superior to the Cobb-Douglas function in the SFA approach. Overall, high efficiency values were found in both the parametric and non-parametric methods and the results were consistent. Spearman’s coefficients showed weak correlations between the DEA and SFA approaches, with inconsistencies among the samples. Limited comparisons, however, could be made based on subsectors. Although inconsistencies were found in both approaches to identify firms with best and worst performances, the methods could still be useful in measuring TE through a careful selection of the input and output variables, depending on the context, objectives, and environment of the measurement.

Reference
  • Agarwal, S., Yadav, S. P., & Singh, S. P. (2010). DEA based estimation of the technical efficiency of state transport undertakings in India. Opsearch, 47(3), 216-230.
    Aigner, D., Lovell, C. K., & Schmidt, P. (1977). Formulation and estimation of stochastic frontier production function models. Journal of Econometrics, 6(1), 21-37.
    Avkiran, N. K. (2001). Investigating technical and scale efficiencies of Australian universities through data envelopment analysis. Socioeconomic Planning Sciences, 35(1), 57-80.
    Banker, R. D., Charnes, A., & Cooper, W. W. (1984). Some models for estimating technical and scale inefficiencies in data envelopment analysis. Management Science, 30(9), 1078-1092.
    Banker, R. D., & Morey, R. C. (1986). Efficiency analysis for exogenously fixed inputs and outputs. Operations Research, 34(4), 513- 521.
    Basri, Abdul Hamid & Tan Y.L. (2006). “Kajian Sosio-Ekonomi dan Kecekapan Teknikal Penangkapan Ikan Nelayan di Negeri Melaka.” Persidangan Pertama Pembangunan Komuniti Pulau dan Pesisir Pantai, KUSTEM. 106-125.
    Battese, G. E., & Coelli, T. J. (1988). Prediction of firm-level technical efficiencies with a generalized frontier production function and panel data. Journal of Econometrics, 38(3), 387-399.
    Battese, G. E., & Coelli, T. J. (1995). A model for technical inefficiency effects in a stochastic frontier production function for panel data. Empirical Economics, 20(2), 325-332.
    Battese, G. E., & Broca, S. S. (1997). Functional forms of stochastic frontier production functions and models for technical inefficiency effects: A comparative study for wheat farmers in Pakistan. Journal of Productivity Analysis, 8(4), 395–414.
    Bauer, P. W., Berger, A. N., Ferrier, G. D., & Humphrey, D. B. (1998). Consistency conditions for regulatory analysis of financial institutions: a comparison of frontier efficiency methods. Journal of Economics and Business, 50(2), 85-114.
    Boame, A. K. (2004). The technical efficiency of Canadian urban transit systems. Transportation Research Part E: Logistics and Transportation Review, 40(5), 401-416.
    Buckley, P. J., Clegg, J., Zheng, P., Siler, P. A., & Giorgioni, G. (2010). The impact of foreign direct investment on the productivity of China’s automotive industry. In Foreign Direct Investment, China and the World Economy (pp. 284-304). Palgrave Macmillan UK.
    Chang, V., & Tovar, B. (2014). Efficiency and productivity changes for Peruvian and Chilean ports terminals: A parametric distance functions approach. Transport Policy, 31, 83-94.
    Charnes, A., & Cooper, W. W. (1962). Programming with linear fractional functionals. Naval Research Logistics Quarterly, 9(34), 181-186.
    Charnes, A., Cooper, W. W., & Rhodes, E. (1978). Measuring the efficiency of Decision Making Unit. European Journal of Operational Research, 2, 429-444.
    Coelli, T. J., & Battese, G. E. (1996). Identification of factors which influence the technical inefficiency of Indian farmers. Australian Journal of Agricultural Economics, 40(2), 103-128.
    Coelli, T. J., Rao, D. S. Prasada & Battese, G. E. (1998). An introduction to efficiency and productivity analysis. Boston: Kluwer Academic Publisher.
    Coelli, T., & Perelman, S. (1999). A comparison of parametric and non-parametric distance functions: With application to European railways. European Journal of Operational Research, 117(2), 326-339.
    Coelli, T. J., Rao, D. S. P., O’Donnell, C. J., & Battese, G. E. (2005). An introduction to efficiency and productivity analysis. Springer Science & Business Media.
    Cooper, W. W., Seiford, L. M., & Tone, K. (2000). Data Envelopment Analysis. A comprehensive text with models, applications, references and DEA-Solver Software. Boston: Kluwer Academic Publishers.
    Cooper, W. W., Seiford, L. M., & Tone, K. (2007). The basic CCR model. In Data envelopment analysis a comprehensive text with models, applications, references and DEA-Solver software. (2nd ed.). New York: Springer Science Business Media, Inc.
    Coto-Millán, P., Inglada, V., Legidos, B. R., & Rodríguez-Álvarez, A. (2004). Changes in the world air industry: An analysis of technical efficiency. International Journal of Transport Economics, 341-354.
    Cullinane, K., Wang, T. F., Song, D. W., & Ji, P. (2006). The technical efficiency of container ports: comparing data envelopment analysis and stochastic frontier analysis. Transportation Research Part A: Policy and Practice, 40(4), 354-374.
    Fahmy-Abdullah, M., Ismail, R., Sulaiman, N. & Talib, B. A. (2017). Technical efficiency in Transport Manufacturing Firms: Evidence from Malaysia, Asian Academy of Management Journal, 22(1).
    Fahmy-Abdullah, M., Sieng, L. W., & Isa, H. M. (2019). Technical efficiency evaluation: Study on Malaysian Electrical and Electronics Firms. Asian Academy of Management Journal, 24(2), 1-19.
    Fahmy-Abdullah, M., L.W. Sieng, & S. Ridzuan. Data Envelopment Analysis (DEA) two stages in identify determinant factor of efficiency techniques for transport in manufacturing firms. Sains Malaysiana, 48(4), 901-8.
    Farrell, M. J. (1957). The measurement of productive efficiency. Journal of the Royal Statistical Society. Series A (General), 120(3), 253-290. Ferrier, G. D., & Lovell, C. K. (1990). Measuring cost efficiency in banking: Econometric and linear programming evidence. Journal of Econometrics, 46(1-2), 229-245.
    Fiorentino, E., Karmann, A., & Koetter, M. (2006). The cost efficiency of German banks: A comparison of SFA and DEA.
    Gonzalez, E., Carcaba, A., & Ventura, J. (2015). How car dealers adjust prices to reach the product efficiency frontier in the Spanish automobile market. Omega, 51, 38-48.
    Jarboui, S., Forget, P., & Boujelbene, Y. (2012). Public road transport efficiency: A literature review via the classification scheme. Public Transport, 4(2), 101-128.
    Jarboui, S. A. M. I., Pascal, F., & Younes, B. (2013). Public road transport efficiency: A stochastic frontier analysis. Journal of Transportation Systems Engineering and Information Technology, 13(5), 64-71.
    Jarboui, S., Forget, P., & Boujelben, Y. (2015). Efficiency evaluation in public road transport: a stochastic frontier analysis. Transport, 30(1), 1-14.
    Karlaftis, M. G., & Tsamboulas, D. (2012). Efficiency measurement in public transport: Are findings specification sensitive?. Transportation Research Part A: Policy and Practice, 46(2), 392-402.
    Latif, M. S. A., Fahmy-Abdullah, M., & Sieng, L. W. (2019). Determinants factor of technical efficiency in machinery manufacturing industry in Malaysia. International Journal of Supply Chain Management, 8(6), 917– 928.
    Lin, Z., Choo, Y., & Oum, T. H. (2013). Efficiency benchmarking of North American airports: Comparative results of productivity index, data envelopment analysis and stochastic frontier analysis. In Journal of the Transportation Research Forum 52(1), 47- 67. Transportation Research Forum.
    Lovell, C. A. K. (1993). Production frontiers and productive efficiency. In H. Fried, CAK Lovell & H. Schmidt (Eds.) The measurement of productive efficiency.
    Mahadevan, R. (2004). The economics of productivity in Asia and Australia. Edward Elgar Publishing.
    Mankiw, N. G., Phelps, E. S., & Romer, P. M. (1995). The growth of nations. Brookings Papers on Economic Activity, 1995(1), 275- 326.
    Mazumder, R., & Adhikary, M. (2010). Measuring technical efficiency in the Indian automobile industry. South Asia Economic Journal, 11(1), 53-67.
    Meeusen, W., & Van den Broeck, J. (1977). Efficiency estimation from Cobb-Douglas production functions with composed error. International Economic Review, 435-444.
    MITI (2013). National Automotive Policy 2014. Ministry of International Trade and Industry.
    Noor Aini., A. K. (2013). Ownership and technical efficiency in Malaysia’s automotive industry: A stochastic frontier production function analysis. The Journal of International Trade & Economic Development, 22(4), 509-535.
    Nunamaker, T. R. (1985). Using data envelopment analysis to measure the efficiency of non profit organizations: A critical evaluation. Managerial and Decision Economics, 6(1), 50-58.
    Odeck, J., & Brathen, S. (2012). A meta-analysis of DEA and SFA studies of the technical efficiency of seaports: A comparison of fixed and random-effects regression models. Transportation Research Part A: Policy and Practice, 46(10), 1574-1585.
    Perbadanan Produktiviti Malaysia. (2012/2013). Laporan Produktiviti 2013 dan 2014. Kuala Lumpur: Perbadanan Produktiviti Malaysia.
    Putri., Z. A. (2007). Kajian mengenai perbezaan produktiviti antara syarikat asing dan syarikat tempatan dalam industri automotif di Malaysia. (Tesis Ijazah Sarjana). Universiti Kebangsaan Malaysia.
    Rahmah, I., & Idris, J. (2008). Analisis perubahan kecekapan teknikal, perubahan teknologi, pertumbuhan produktiviti faktor keseluruhan dan pertumbuhan output dalam industri peralatan pengangkutan di Malaysia. Sains Humanika, 49(1).
    Randrianarisoa, L. M., Bolduc, D., Choo, Y. Y., Oum, T. H., & Yan, J. (2015). Effects of corruption on efficiency of the European airports. Transportation Research Part A: Policy and Practice, 79, 65-83.
    Rhee, M., & Kim, T. (2015). The role of experience in a governmental regulatory investigation in the US automobile industry: Organizational learning versus reputational dynamics. Socio-Economic Review, 13(2), 285-308.
    Sabli, M.A.N., Fahmy-Abdullah, M., & L.W. Sieng. Application of Two-Stage Data Envelopment Analysis (DEA) in identifying the technical efficiency and determinants in the plastic manufacturing industry in Malaysia. International Journal of Supply Chain Management, 8(6), 899-907.
    Sun, X., Lv, X., & Li, L. (2015). Sufficient and comprehensive measurement of Automobile Manufacturing Industry Performance Applying Bi-objective Superefficiency DEA.
    Tingley, D., Pascoe, S., & Coglan, L. (2005). Factors affecting technical efficiency in fisheries: Stochastic production frontier versus data envelopment analysis approaches. Fisheries Research, 73(3), 363-376.
    Yu, M. M., & Fan, C. K. (2009). Measuring the performance of multimode bus transit: A mixed structure network DEA model. Transportation Research Part E: Logistics and Transportation Review, 45(3), 501-515.