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Dynamic technical inefficiency and industrial concentration in the Indonesian food and beverages industry

Dynamic technical inefficiency and industrial concentration in the Indonesian food and beverages... PurposeThe purpose of this paper is to investigate the relation between industrial concentration and technical inefficiency in the Indonesian food and beverages industry using a dynamic performance measure (dynamic technical inefficiency) that accounts for the presence of adjustment costs.Design/methodology/approachThis research uses panel data of 44 subsectors in the Indonesian food and beverages industry for the period 1980-2014. The dynamic input directional distance function is applied to estimate the dynamic technical inefficiency. Further, the Granger causality between industrial concentration and dynamic technical inefficiency is tested using a dynamic panel data model. A bootstrap truncated regression model is finally applied to estimate the relation between industrial concentration and dynamic technical inefficiency based on the results from the Granger causality test.FindingsThe results show that the Indonesian food and beverages industry has a high dynamic technical inefficiency. Investigation of the causality of the relation shows that industrial concentration has a positive effect on dynamic technical inefficiency at the subsector level, with no reversed causality. The results suggest that the quiet life hypothesis applies to the Indonesian food and beverages industry.Originality/valueThe literature investigating the relation between industrial concentration and performance relies on static measures of performance, such as technical efficiency. Static measures provide an incorrect metric of the firms’ performance in the presence of adjustment costs associated with investment. Therefore, this research has a contribution in measuring dynamic technical inefficiency that accounts for the presence of the adjustment cost as well as its relation with industrial concentration in the Indonesian food and beverages industry. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png British Food Journal Emerald Publishing

Dynamic technical inefficiency and industrial concentration in the Indonesian food and beverages industry

British Food Journal , Volume 120 (1): 12 – Jan 2, 2018

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References (31)

Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
0007-070X
DOI
10.1108/BFJ-04-2017-0226
Publisher site
See Article on Publisher Site

Abstract

PurposeThe purpose of this paper is to investigate the relation between industrial concentration and technical inefficiency in the Indonesian food and beverages industry using a dynamic performance measure (dynamic technical inefficiency) that accounts for the presence of adjustment costs.Design/methodology/approachThis research uses panel data of 44 subsectors in the Indonesian food and beverages industry for the period 1980-2014. The dynamic input directional distance function is applied to estimate the dynamic technical inefficiency. Further, the Granger causality between industrial concentration and dynamic technical inefficiency is tested using a dynamic panel data model. A bootstrap truncated regression model is finally applied to estimate the relation between industrial concentration and dynamic technical inefficiency based on the results from the Granger causality test.FindingsThe results show that the Indonesian food and beverages industry has a high dynamic technical inefficiency. Investigation of the causality of the relation shows that industrial concentration has a positive effect on dynamic technical inefficiency at the subsector level, with no reversed causality. The results suggest that the quiet life hypothesis applies to the Indonesian food and beverages industry.Originality/valueThe literature investigating the relation between industrial concentration and performance relies on static measures of performance, such as technical efficiency. Static measures provide an incorrect metric of the firms’ performance in the presence of adjustment costs associated with investment. Therefore, this research has a contribution in measuring dynamic technical inefficiency that accounts for the presence of the adjustment cost as well as its relation with industrial concentration in the Indonesian food and beverages industry.

Journal

British Food JournalEmerald Publishing

Published: Jan 2, 2018

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