Measuring Technical Efficiency in the Indian Automobile Industry

This study has measured firm-specific time invariant technical efficiency in the Indian automobile industry during 2004–06 using a suitably constructed stochastic production frontier. The one-sided inefficiency random variable is assumed to be truncated normal with a variable mode which is non-neutral with respect to some selected firm-specific factors, capable of explaining inter-firm variations in the level of technical inefficiency. It is found that age of the firm since inception and level of technical efficiency are inversely associated. However, the market share of the firm and the degree of automation are found to be positively associated with firm level technical efficiency. Statistical tests further reveal that the underlying technology in the automobile industry in India is linear homogeneous.