Concentration and Efficiency in Indian Manufacturing : A Regional Study

Regional concentration of firms has several effects on the development of firms. While theories point out different relationships between firm’s efficiency and regional concentration, this study analyzes such relationships for nine Indian manufacturing industries located in 17 Indian states using Data Envelopment Analysis (DEA) and the Tobit model. Results on efficiency show that technical efficiency is better than allocative efficiency, indicating betterment of technology and at the same time excess use of resources in Indian industries. Besides, regional concentration of industries is found to have a negative relationship with efficiency, which supports the ‘Quiet Life Hypothesis’ of Hicks. Tobit analysis also shows the prevalence of negative relations between efficiency and concentration in Indian industries. Just-in-time management of inventories could be encouraged and measures to see that this is successful in industries should be the aim of reforms