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Abstract
This study examines the productivity, efficiency change and technical progress of small manufacturing firms in Coimbatore, India using Data Envelopment Analysis. Since July 1991, major economic policy changes have been made under an economic reforms programme. The new policies have relaxed or removed many government controls on production capacity, imported capital goods, intermediate inputs and technology. These reforms have altered the economic environment of the country. The results reveal that productivity and technical progress was slightly higher in the pre-reform period than in the post-reform period but technical efficiency is greater in the post-reform period.
Notes
1. Much of the earlier literature dealt with the informal sector. For Indian evidence, see Gang (1992).
2. See Fare et al. (1994) for a discussion on how output distance functions are defined and measured.
3. To compare the performance prior to the July 1991 reforms and that following them, the conventional practice is to draw the line at 1990–1991 and thus to divide the time period into the decades of the 1980s and 1990s. However, this division does not accurately reflect the division into periods prior to and following the July 1991 reforms. Indeed, because 1991–1992 was a crisis year and the 1991 reforms were a response to, rather than the cause of, the crisis, the conventional practice creates a profound distortion by including the year 1991–1992 in the post-1991 reform period. The July 1991 reforms and subsequent changes could not have begun to bear fruit prior to 1992–1993. Therefore, 1991–1992 is taken as the dividing line between the two periods. The start of the post-1991 reform period is 1992–1993 (Panagariya, 2004).
4. See the Appendix for details of the firms classification.