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. Stratified sampling method was used to collect data via survey questionnaire from 70 SMEs, listed at Census of Manufacturing Industries and Federal Bureau of Statistics, for the period 2012-2013. 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 clusterspecific 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%. Stakeholders are advised to proactively indoctrinate themselves with the additive manufacturing of surgical instruments. Broader implications for clusterbased industries are also discussed.