Abstract
This study utilized panel data and the stochastic frontier approach based on the Cobb–Douglas production function to estimate macro-level technical efficiency and economic openness as well as to identify the determinants of technical efficiency in South Asian countries over the period 1990 to 2019. Data are from the World Development Indicators of the World Bank and the United Nations Conference on Trade and Development. The results suggest a 10% technical inefficiency in the region. In addition, they show high efficiency with more foreign direct investment and openness in South Asian countries. The country-specific technical efficiency estimation indicates that Sri Lanka is the most technically efficient country, followed by India and Pakistan, whereas Bangladesh is the least technically efficient country. Furthermore, the study provides robust evidence for the positive effect of macroeconomic openness of foreign direct investment and trade on technical efficiency. The present study provides a future perspective on the country-specific economic strategies in South Asia. In addition, the findings provide important evidence on how macroeconomic policies can affect efficiency and steady growth by examining and identifying the factors that influence technical efficiency in the region. Additionally, the differences between the factors that influence technical efficiency in different countries are discussed by comparing the findings of this study with those of previous studies that have focused on economic openness. This paper presents a view on the status of macro-level technical efficiency. Furthermore, it explores the opportunities for foreign direct investment and export-oriented policies of South Asian countries, which would benefit these nations.
Similar content being viewed by others
References
Aigner, D., Lovell, C., & Schmidt, P. (1977). Formulation and estimation of stochastic frontier production function models. Journal of Econometrics, 6(1), 21–37.
Akram, V., & Illiyan, A. (2021). Technical efficiency and input-driven growth in Indian engineering goods industry during post-reform period: Stochastic frontier approach. Journal of Economic and Administrative Sciences. https://doi.org/10.1108/jeas-08-2020-0145
Alem, H., Lien, G., & Hardaker, J. B. (2018). Economic performance and efficiency determinants of crop-producing farms in Norway. International Journal of Productivity and Performance Management, 67(9), 1418–1434.
Aurangzeb, Z., & Stengos, T. (2014). The role of foreign direct investment (FDI) in a dualistic growth framework: A smooth coefficient semi-parametric approach. Borsa Istanbul Review, 14(3), 133–144.
Baiashvili, T., & Gattini, L. (2020). Impact of FDI on economic growth: the role of country income levels and institutional strength. EIB Working Paper 2020/02. https://doi.org/10.2867/846546
Barro, R. J., & Sala-i-Martin, X. (1995). Economic growth. New York, NY: McGraw.
Battese, G. E., & Coelli, T. J. (1988). Prediction of firm-level technical efficiencies with a generalized frontier production function and panel data. Journal of Econometrics, 38(3), 387–399.
Battese, G. E., & Coelli, T. J. (1992). Frontier production functions, technical efficiency and panel data: With application to paddy farmers in India. Journal of Productivity Analysis, 3(1–2), 153–169.
Bhagwati, J. N. (1978). Anatomy and consequences of exchange control regimes. National Bureau of Economic Research. http://www.nber.org/books/bhag78-1. Accessed 15 June 2022.
Deliktas, E., & Günal, G. G. (2016). Economic growth and input use efficiency in low, upper -middle and high incomed countries (1991–2011): A data envelopment analysis. Procedia Economics and Finance, 38, 308–317.
Dimelis, S., & Papaioannou, S. (2010). FDI and ICT effects on productivity growth: A comparative analysis of developing and developed countries. The European Journal of Development Research, 22, 79–96.
Esquivias, M. A., & Harianto, S. K. (2020). Does competition and foreign investment spur industrial efficiency? Firm-Level Evidence from Indonesia. Heliyon, 6(8), e04494.
Farrell, M. J. (1957). The measurement of productive efficiency. Journal of the Royal Statistical Society: Series A (General), 120(3), 253–281.
Grossman, G. M., & Helpman, E. (1991). Trade, knowledge spillovers, and growth. European Economic Review, 35(2–3), 517–526.
Hart, J., Miljkovic, D., & Shaik, S. (2015). The impact of trade openness on technical efficiency in the agricultural sector of the European Union. Applied Economics, 47(12), 1230–1247.
Hartungi, R. (2006). Could developing countries take the benefit of globalisation? International Journal of Social Economics, 33(11), 728–743.
Hossain, M., & Karunaratne, N. (2004). Trade liberalisation and technical efficiency: Evidence from Bangladesh manufacturing industries. Journal of Development Studies, 40(3), 87–114.
Iyer, K. G., Rambaldi, A. N., & Tang, K. K. (2008). Efficiency externalities of trade and alternative forms of foreign investment in OECD countries. Journal of Applied Econometrics, 23(6), 749–766.
Kim, S. (2003). Identifying and estimating sources of technical inefficiency in Korean manufacturing industries. Contemporary Economic Policy, 21(1), 132–144.
Koengkan, M., Fuinhas, J. A., Kazemzadeh, E., Osmani, F., Alavijeh, N. K., Auza, A., & Teixeira, M. (2022). Measuring the economic efficiency performance in Latin American and Caribbean countries: An empirical evidence from stochastic production frontier and data envelopment analysis. International Economics, 169, 43–54.
Liu, W., & Zou, S. (2013). Does openness increase the efficiency of China’s manufacturing firms? Evidence from the World Bank Investment Climate Survey. Frontiers of Economics in China, 8(30), 430–451.
Liu, G. S., Liu, X., & Wei, Y. (2005). Openness and efficiency of Malaysia, India and China relative to the world economy: A comparative study. Malaysian Journal of Economic Studies, 42(1/2), 41.
Meeusen, W., & van den Broeck, J. (1977). Efficiency estimation from Cobb-Douglas production functions with composed error. International Economic Review, 18(2), 435.
Miljkovic, D., Miranda, S. H., & Shaik, S. (2013). Trade openness and technical efficiency in Brazilian agriculture. Applied Economics Letters, 20(2), 103–106.
Ngouhouo, I., Nchofoung, T., & NjamenKengdo, A. A. (2021). Determinants of trade Openness in Sub-Saharan Africa: Do institutions matter? International Economic Journal, 35(1), 96–119.
Nourzad, F. (2007). Openness and the efficiency of FDI: A panel stochastic production frontier study. International Advances in Economic Research, 14(1), 25–35.
Nurrahma, T. (2013). The impact of trade liberalization on technical efficiency of Indonesian manufacturing firms. Journal Ekonomi Dan Pembangunan Indonesia, 14(1), 82–108.
Rivera-Batiz, L. A., & Romer, P. M. (1991). Economic integration and endogenous growth. The Quarterly Journal of Economics, 106(2), 531.
Rodrik, D. (1992). Closing the productivity gap: Does trade liberalization really help? In G. K. Helleiner (Ed.), Trade policy, industrialization and development: New perspectives (pp. 155–175). Clarendon Press.
Shaik, S., & Miljkovic, D. (2011). The impact of trade openness on technical efficiency in US agriculture. Journal of International Agricultural Trade and Development, 7(2), 131–144.
Suatmi, B. D., Bloch, H., & Salim, R. (2017). Trade liberalization and technical efficiency in the Indonesian chemicals industry. Applied Economics, 49(44), 4428–4439.
Sun, H., Hone, P., & Doucouliago, H. (1999). Economic openness and technical efficiency: A case study of Chinese manufacturing industries. The Economics of Transition, 7(3), 615–636.
Tjitrajaya, Y. A., Lim, C., Pasaribu, S. M. S., Sandjaja, F. R., & Mokoginta, I. S. (2021). The importance of economic openness on technical efficiency in global perspective. International Journal of Economic Policy Studies, 15(2), 387–403.
UNCTAD. (2019). Available at: http://unctadstat.unctad.org/EN/. Last accessed 19-July-2022.
World Bank. (2019). World Development Indicators. Available at: https://databank.worldbank.org/source/world-development-indicators. Last accessed 20-July-2022.
Yasin, M. Z. (2021). Technical efficiency and total factor productivity growth of Indonesian manufacturing industry: Does openness matter?. Studies in Microeconomics, (June), 1-30. https://doi.org/10.1177/23210222211024438
Author information
Authors and Affiliations
Corresponding author
Additional information
Publisher's Note
Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.
Rights and permissions
Springer Nature or its licensor (e.g. a society or other partner) holds exclusive rights to this article under a publishing agreement with the author(s) or other rightsholder(s); author self-archiving of the accepted manuscript version of this article is solely governed by the terms of such publishing agreement and applicable law.
About this article
Cite this article
Al-Zyoud, H., Illiyan, A. & Akram, V. Impact of Economic Openness on Macro Technical Efficiency in South Asia. Int Adv Econ Res 28, 91–103 (2022). https://doi.org/10.1007/s11294-022-09858-3
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s11294-022-09858-3