Efficiency Measure from Dynamic Stochastic Production Frontier: Application to Tunisian Textile, Clothing and Leather Industries

This paper is concerned with the estimation of firm and time-varying technical efficiency. The approach used to measure efficiency is different from the conventional static and stochastic frontier approach. We focus here on dynamic adjustment in attaining a target level of production. Technical inefficiency is modeled via an error correction type model. The main objective is to investigate the development of efficiency over time, the rate of technical change and the productivity growth. Estimation of a dynamic error components model is considered. The empirical analysis is based on an unbalanced panel data consisting of 388 firms from the Tunisian textile, clothing and leather industries (TCL) observed during 1983-1994. The mean efficiency score is found to be of 63 percent and there is no evidence of continuous increase in efficiency. We observe a technical regress during the period. We find that exporting firms are more efficient than the non-exporting ones and that the decline in efficiency is more pronounced for the non-exporting firms. Productivity growth rates are negative with a mean of –4 percent