Technical Efficiency of Sri Lanka's Manufacturing Industries

Neil D. Karunaratne, Yapa Bandara

Research output: Contribution to journalArticlepeer-review

Abstract

This paper analyses the technical efficiency (TE) of Sri Lanka's manufacturing sector in the Post-Liberalisation (post-1977) period. It applies a recently developed stochastic frontier-efficiency modelling technique to estimate technical efficiency/inefficiency of manufacturing industries using data for three representative years. Technical efficiency is a critical component of total factor productivity growth in manufacturing. The viability of export oriented manufacturing crucially depends on sharpening of international competitiveness of manufacturing production. The need to bolster productivity is clear to policy makers, as international competitiveness of manufacturing exports does not depend on factor inputs alone in the long run. The policy prescriptions to nurture international competitiveness should not be based on partial productivity measures such as labour productivity alone as it would lead to flawed investment and resource allocation decisions. Hence the need for a comprehensive approach to productivity analysis is underscored. The findings of the study suggest that: (a) Sri Lanka's manufacturing industries have not harnessed fully the potential gains in technical efficiency after trade liberalisation, (b) and furthermore capital intensive industries have performed better than the labour intensive industries in achieving and maintaining higher technical efficiency levels.
Original languageEnglish
Pages (from-to)3-36
Number of pages34
JournalSri Lanka Economic Journal
Volume5
Issue number1
Publication statusPublished - 2005

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