Resource Use Efficiency of Small Scale Furniture Industry in Sri Lanka: A Stochastic Frontior Production Function Approach

Abstract

In economics, it is well recognized that resources involved in the production process are limited in supply and that the scarce resources must be efficiently utilized with the minimum of wastage. Recent literature indicates that small scale entrepreneurs in the developing countries fall short of exploiting the full potential of current technological means. Thus, increasing the efficiency in production assumes greater significance in attaining potential output at the industry level. However it is an undeniable fact that the majority of small scale entrepreneurs are characterized by poor economic status due to inefficient utilization of available resources in Sri Lanka. This paper investigates the economic and technical efficiency of furniture industry in Sri Lanka and suggests policy recommendations for efficient utilization of resources. The field survey carried out among 335 small scale furniture producers in Moratuwa area which is furniture hub in Sri Lanka. The translog production frontier was found to be an adequate representation of the data. According to the results obtained from the stochastic frontier estimation, the average technical efficiency of selected farmers was found to be 69.9%, which in turn indicates a scope for further improvements without increasing the level of input. The analysis using the translog production function indicated miss-allocation of resources is primarily due to the lack of managerial experience on the part of the producers.