What caused Sri Lanka’s Manufacturing Productivity slow-down by the turn of the Century, Technical Inefficiency or lack of Technical Progress?
Yapa Bandara
Working Paper No. 11/07
November 2007
About the Author
- Yapa Bandara
School of Commerce
Charles Sturt University
Charles Sturt University – Faculty of Business Working Paper Series
Managing Editor: Associate Professor Jayne Bisman, School of Accounting, Bathurst
Editors: Dr P. Mathews, School of Commerce, Wagga Wagga
Associate Professor M. O'Mullane, School of Business, Albury
Dr R. Tierney, School of Marketing and Management, Bathurst
Dr D Ardagh, School of Commerce, Wagga Wagga
Ms K Mather, School of Computing and Mathematics, Wagga Wagga
The Faculty of Business Working Paper Series is intended to provide staff and students with a means of communicating new and evolving ideas in order to encourage academic debate. Working papers, as the title suggests, should not necessarily be taken as completed works or final expressions of opinion. All working papers are subject to review prior to publication by one or more editors or referees familiar with the discipline area. Normally, working papers may be freely quoted and/or reproduced provided proper reference to the author and source is given. When a working paper is published on a restricted basis, notice of such restriction will appear on this page.
Table of Contents
- Abstract
- Introduction
- Model Specification, Data and Variables
- Estimation of the Stochastic Varying Coefficients Frontier Production Function
- Decomposition of Sri Lanka’s Manufacturing Output Growth: An empirical investigation
- Conclusions & Recommendations
- References
Abstract
This paper provides important insights to Sri Lanka’s manufacturing productivity policy debate in the context of trade liberalisation by decomposing the total factor productivity (TFP) into Technical Efficiency (TE) and Technical Progress (TP). The study employs a varying coefficient stochastic frontier production function (SFPF) approach using a balanced panel data set of 27 manufacturing industries over 21 years. The findings reveal first, output growth of the manufacturing sector is input driven during the immediate aftermath of policy reforms, but over the consolidation period of trade liberalization, TFP growth became the driving force of output growth. Secondly, improvements in technical progress were stronger during the first wave of trade liberalization (1978-1988) than during the second wave (1988-97). Third, the main cause for the alarming productivity slow down during the last period under investigation (1993-97) is the decline of technical progress (TP). This suggests that the country needs to embark on a new policy reform package to promote investment and exports in the manufacturing sector. Given the dynamic nature of the external market environment, such new reforms need to aim at a paradigm shift from ‘labour intensive’ and ‘resource based’ position to a ‘knowledge based’ and ‘technology intensive’ platform.