Data envelopment analysis and panel regression in analysing technical efficiency and its determinants of the palm oil products-based manufacturing subsector

Abstract

This study measures the technical efficiency score of the manufacturing sector of the palm oil products-based subsector in Malaysia and investigates the major determinants that influence efficiency. Based on the Industrial Manufacturing Survey, this study explores the data from 2000 to 2015 over sixteen years, with a total of eleven subsectors of palm oil products-based. The first stage of the study is carried out with a data envelopment analysis (DEA) to calculate the technical efficiency score, which is considered a dependent variable. The second stage of the study uses a panel regression model to examine the determinants of efficiency comprise the variable capital-labour ratio, research and development, information communication technology, training, and skilled labour. The study findings show that most of the palm oil products-based subsectors are not operating efficiently. Skilled labour, technical and supervisory, and professional is one of the main determinants contributing to the efficiency level. The variable capital-labour ratio though significant, but harms the efficiency level. The moderating effects show that skilled technical and supervisory workers relatively affect the food industry’s efficiency larger than the non-food industry. Therefore, the industry still has room to improve efficiency by utilising input efficiently. Moreover, the efforts involve organisational management, equipped appropriate technology and related factors that will improve efficiency, increase productivity and competitiveness of palm oil products-based industries.