Technical Efficiency And Its Determinants: An Empirical Study Of Surgical Instruments Cluster Of Pakistan

Abstract

The empirical study was conducted to examine the technical efficiency of SMEs in the export-oriented surgical instruments cluster of Sialkot, Pakistan. Data was collected through survey questionnaire from 70 SMEs, listed at Census of Manufacturing Industries and Federal Bureau of Statistics. For data analysis, Cobb-Douglas production function and an inefficiency model based on stochastic frontier approach, estimated through OLS method, were employed. The study draws on its inferences from both the qualitative and quantitative data. There was widespread prevalence of technical inefficiencies and provision of indirect inputs, labor, material and energy found to be significant determinants of technical efficiency. Moreover, this export-oriented industrial cluster is shown to experience constant returns to scale. Provision of proximate specialized surgical instruments and raw-material market is recommended. We also put forward cluster-specific suggestion of pursuing of 'triple-helix+1' model, whereby local community is integrated with the traditional triple helix forces. It was further advocated that by reducing the prevailing technical inefficiency in this urbanization economy, productivity can be enhanced by as much as 5.6%. Implications for cluster-based industries are drawn from our findings to provide pragmatic recommendations to both policymakers and prospective entrepreneurs.