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Structural change and technical efficiency: a study of Indian pulp and paper industry

Structural change and technical efficiency: a study of Indian pulp and paper industry The pulp and paper industry has been the focus of government policies ever since independence. This is the only industry where government plays a multi-dimensional role – not only as the regulator but also as the supplier of raw material and as the buyer. Despite the government's omnipotent role, there is evidence that industry is not very competitive, as it has very high energy and water intensity and poor productivity. A potent factor identified in the literature for the underperformance of the industry or for that matter any economy is the kind of technology used by the firms in the sector. This paper aims to look into the role of government policy in affecting the growth of the industry and what role embodied technology has played in influencing the efficiency of firms in Indian pulp and paper industry.Design/methodology/approachFor the first question, the study uses 66 years of production data of the industry from 1951 to 2016 and tests for the structural break. For the second question, the study uses cross-section plant-level data for the year 2011-2012 of 160 paper manufacturing units to first estimate the stochastic production frontier (stochastic frontier analysis [SFA]) and then uses the output of SFA to find an association between embodied technology gap (TG) and technical efficiency. A methodological problem in earlier literature is the use of the productivity gap as a proxy for embodied TG. The present study uses technical parameters of papermaking – machine deckle and operating speed – to construct an index of TG.FindingsThe results show a structural break in the production trend occurring in 1999 with the delicensing in July 1997 as the possible cause. The SFA results show that the average technical inefficiency (TE) of the firms in the sector is 74 per cent with half of the firms having TE higher than 76 per cent. The study, however, does not find any impact of embodied TG on technical efficiency; rather it is the age, size, ownership and location that have an impact on it.Originality/valueThis is an original research, as the author has not come across any study in Indian context or elsewhere using technical parameters to construct TG variable. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Indian Growth and Development Review Emerald Publishing

Structural change and technical efficiency: a study of Indian pulp and paper industry

Indian Growth and Development Review , Volume 13 (1): 20 – Apr 22, 2020

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References (33)

Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1753-8254
DOI
10.1108/igdr-11-2018-0121
Publisher site
See Article on Publisher Site

Abstract

The pulp and paper industry has been the focus of government policies ever since independence. This is the only industry where government plays a multi-dimensional role – not only as the regulator but also as the supplier of raw material and as the buyer. Despite the government's omnipotent role, there is evidence that industry is not very competitive, as it has very high energy and water intensity and poor productivity. A potent factor identified in the literature for the underperformance of the industry or for that matter any economy is the kind of technology used by the firms in the sector. This paper aims to look into the role of government policy in affecting the growth of the industry and what role embodied technology has played in influencing the efficiency of firms in Indian pulp and paper industry.Design/methodology/approachFor the first question, the study uses 66 years of production data of the industry from 1951 to 2016 and tests for the structural break. For the second question, the study uses cross-section plant-level data for the year 2011-2012 of 160 paper manufacturing units to first estimate the stochastic production frontier (stochastic frontier analysis [SFA]) and then uses the output of SFA to find an association between embodied technology gap (TG) and technical efficiency. A methodological problem in earlier literature is the use of the productivity gap as a proxy for embodied TG. The present study uses technical parameters of papermaking – machine deckle and operating speed – to construct an index of TG.FindingsThe results show a structural break in the production trend occurring in 1999 with the delicensing in July 1997 as the possible cause. The SFA results show that the average technical inefficiency (TE) of the firms in the sector is 74 per cent with half of the firms having TE higher than 76 per cent. The study, however, does not find any impact of embodied TG on technical efficiency; rather it is the age, size, ownership and location that have an impact on it.Originality/valueThis is an original research, as the author has not come across any study in Indian context or elsewhere using technical parameters to construct TG variable.

Journal

Indian Growth and Development ReviewEmerald Publishing

Published: Apr 22, 2020

Keywords: India; Technical efficiency; Embodied technical change; Pulp and paper industry; Stochastic production frontier; Technology gap

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