Technical Efficiency in the Chinese Textile Industry

This paper presents a measurement of the technical efficiency of textile industries with 4-digit codes in China by using the cross-section data from 2002 and 2007 and a fully nonparametric stochastic frontier estimation approach. The technical efficiency of these textile industries is compared across six economic ownership types and across seven regions in China. This uncovers the effects of the proprietary characteristics and the location of a firm on its technical efficiency performance. The nonparametric estimation provides some interesting findings. First, textile production in China performs with a decreasing return to scale. The difference between the output elasticity of labor and that of capital decreases from the year 2002 to 2007. Second, the technical efficiency of the 4-digit textile industry in China is significantly contingent on its ownership and location. Privately-run textile enterprises on average perform with the highest level of technical efficiency among the six ownership types while state-owned enterprises perform with the lowest level of technical efficiency, whether or not the location dummies are accounted for. Third, the technical efficiency evaluated by regions follows the order: "eastern area > southern area > central area > northern area," which remains unchanged across the two years.