Since the initiation of economic reforms in 1978, mainland China’s industrial policy has emphasized industries producing consumption goods rather than heavy and chemical industries. Using foreign technology and production lines, the home appliance industry developed rapidly the last decade. However, since the late 1980s over-investment and idle capacity has been seen.
This paper attempts to measure the production function and individual firm technical efficiency for the home appliance industry in mainland China by using the stochastic frontier approach. The first-hand information was obtained from a questionnaire survey conducted in 1993 on a sample of 191 enterprises.
The empirical results have indicated two findings: The indexes of technical efficiency are rather high and the results for each firm tend to be close to those of other firms.
This implies that the individual firms developed along similar paths, so that their actual performance is also close to the estimated frontier. In addition to the convergence of technical efficiency, indexes such as elasticity of factor-output, scale of economy, marginal revenue of factors and elasticity of factor substitution also clearly tend towards convergence. This result is consistent with Jefferson and Rawski’s conclusion that revenue of production factors is convergent among various industries and types of ownership in mainland China.
