Citation
Ahmed Bushara, Mohamed Osman
(2001)
Economic Efficiency of Malaysian Oleochemical Enterprises.
Doctoral thesis, Universiti Putra Malaysia.
Abstract
This study comprises a rigorous Micro Econometric and Data Envelopment
Analysis (DEA) of the performance of the Malaysian oleochemical enterprises over
time. The analysis covers the following sectors: coconut oil, palm oil, palm kernel oil
and other oils and fats, as well as twelve out of fifteen working oleochemical
enterprises.
The micro-economic data were graciously provided by Malaysian National
Productivity Corporation (NPC), Malaysian Department of Statistics and some other
respected sources: Panel data have been used in this study. The time series data and
cross section data have been both pooled together to constitute panel data. Also
maximum likelihood estimation has been incorporated for composed error models as
well as DEA. Where appropriate, the literature has been updated. This study shows that
the major advantage of the systematic application of the two frontier approaches, which
are stochastic and deterministic (DEA), with multiple techniques on panel of data
containing two levels, enables the comparison of synthesis of the results obtained to provide a comprehensive, detailed and insightful understanding of the producer
behaviour. This approach is superior and informative than single eyed approaches.
The results from all approaches consistently show that scale inefficiency and
allocative inefficiency are the main problems in efficiency analysis. The scale
inefficiency is mainly due to production operation at increasing returns to scale. This is
noted specially in the coconut oil sector, the palm kernel oil sector and oleochemical
enterprises. Allocative inefficiency is mainly due to under-utilisation of inputs relative
to capital. Labour was under-utilised relative to capital in palm oil and other fat and oil
sector. Allocative inefficiency due to underutilsation of inputs relative to capital is
proved in this study. It is in consistent with that found by Seale (1990) in Egyptian
Tileries, who claimed that Tileries on average were allocatively inefficient, employing
too much capital relative to labour. The estimate of Malaysian oil and fat industry's
total factor productivity (TFP) change is -3.705% for the period 1985 to 1996. The
major contributor to this negative technological change is the palm oil sector and other
oil and fat sector. The palm oil sector's negative contribution is at an average annual
rate of 6.818% over the period of this study and other oil and fat sector is at an average
annual rate of 5.8] 8%. This implies that the palm oil sector is ailing due to
technological regress. It could be concluded that allocative efficiency requires first or
second best pricing of final products; scale efficiency requires limitation on sub-optimal
entry to the industry; technical efficiency requires cost minimisation by the incumbent
firms; and finally product choice and dynamic efficiency require innovation by
incumbents and new entrants.
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