A stochastic approach to measure performance of the Indian electronics hardware industry after liberalisation

The purpose of this paper is to focus on contribution of technical efficiency change (TEC) and technological progress (TP) to output growth (OG) and addresses the issue of poor total factor productivity growth of electronics hardware industry during liberalization. Inter‐sector differences in productivity have been explained from the perspective of management decision making and their performances.

The analysis is primarily based on 81 electronics hardware firms with incessant operations from 1993 to 2004. The firms have been categorized into four homogenous sub‐sectors and the years into two periods.

The industry, in general, emphasized more on TP than TEC as the industry moved to a greater liberalization regime. The industry lacked the efforts to develop indigenous technology. It catered to huge domestic demand by importing technology without proper adaptation leading to poor TEC.

The limited database prevented us from exploring the impact of the entry of multi‐national companies, foreign direct investment and foreign investments on the productivity of the electronics firms. The inconsistent and missing data on tariff or duty rates for item‐wise products further limited their scope.

The differences in TEC and TP among sub‐sectors has been due to the differences in managerial decision making and management performance which are firm specific in nature.

This paper has applied a novel approach of combining two established but independent theories of estimating stochastic production function and then estimating OG as a function of IG, TEC and TP. This paper provides a valuable reference for Indian electronics hardware industry not only in reviewing their efficiency, but also focusing on enhancing their management performance.