Abstract
This chapter examines the productivity changes and its various components like efficiency, technical and the production possibility ratio (PPR) change for Indian pharmaceutical firms. The analysis reveals that due to policy changes the sector has experienced technological change a considerable number of times. However, only few firms have benefited from such change leading to a rise in the distance between the frontier and inefficient firms. A cross comparison of productivity and its various components across various groups of firms revealed that firms investing heavily on R&D related activity have benefited from innovations. The analysis also indicates that R&D activities of firms do not reciprocate higher returns if it is done in small scale. We also find that increased export earnings are beneficial only when the right market is targeted.
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Notes
- 1.
See also Grosskopf (2003).
- 2.
They named it the Malmquist firm specific productivity index after Malmquist (1953) who had proposed that in a consumer setting, an input quantity index that requires the notion of proportional scaling for year 2 observed quantities for a consumer generating the same utility as observed in year 1. The proportional scaling factor was the quantity index that unlike the other quantity index does not require any price information but that the utility function has to be known (Førsund 1999). Under the assumption of Constant Return to Scale (CRS) and certian other conditions Caves et al. (1982) established that Malmquist productivity index is equivalent to Törnqvist index and also established the intuitive link with the traditional productivity growth defined in terms of the growth in output per unit of input employed for two adjacent periods.
- 3.
Later Berg et al. (1992) also introduced a base period Malmquist productivity index. The base period Malmquist productivity index satisfies the circular test of index number which the adjacent period index does not satisfy. However, the base period index suffers from some drawbacks. As noted by Althin (2001), in the base period Malmquist productivity index, an alteration of the base period directly affects the subsequent measurement of the productivity changes of a firm. Also, when there is rapid technological change, the measurement of the productivity index can become incorrect when the final period is too distant from the base period. In the Indian pharmaceutical industry, we expect rapid technological change because of innovative activites of firms. Hence, it is more appropiate to use adjacent period productivity index.
- 4.
The Färe et al. (1989) decomposition measures the technical change with respect to CRS reference technology. The CRS technology is interpreted as a “global” benchmark for productivity improving technical progress. Ray and Desli (1997) proposed an alternative decomposition, which measures technical change by means of a variable returns to scale (VRS) benchmark technology (see also Grosskopf 2003, and Lovell 2003 for a critical discussion on various issues of Malmquist Productivity Index).
- 5.
In other words, when we construct a single grand frontier for the pharmaceutical sector, we can only capture the technical change for the sector. However, by classifying the firms into various groups, we can estimate the technical change for these groups of firms.
- 6.
Here also we have conducted a Krusal –Wallis χ 2 test to examine the mean differences in technical change across size of firms with R&D related outlays. The size of firms is measured in terms of sales volume. The differences in the mean technical change are significant at 5% level across the size of firms with R&D related outlays (see Table A.1, Appendix A).
- 7.
Most frontier firms with R&D related outlays like Dr Reddys Lab, Ranbaxy, Cipla, Glenmark and others have technological collaboration with foreign companies and with public research institutes like Central Drug Research Institute, Indian Institute for Science etc.
- 8.
The explanatory variables are measured in changes using the standard approach of the literature (Ray 2004).
- 9.
The use of panel data model is justified in Chap. 3.
- 10.
Insights into emerging opportunities for Indian Pharmaceutical firms were gathered in the survey conducted with a few firms.
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Mazumdar, M. (2013). Examining the Efficiency, Technical, and Productivity Changes of Indian Pharmaceutical Firms: A Malmquist -Meta Frontier Approach. In: Performance of Pharmaceutical Companies in India. Contributions to Economics. Physica, Heidelberg. https://doi.org/10.1007/978-3-7908-2876-4_5
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