Academic journal article The Journal of Developing Areas

The Fog of Oecd and Non-Oecd Country Efficiency: A Data Envelopment Analysis Approach

Academic journal article The Journal of Developing Areas

The Fog of Oecd and Non-Oecd Country Efficiency: A Data Envelopment Analysis Approach

Article excerpt

ABSTRACT

Focusing on three input variables (i.e., government efficiency, business efficiency, and infrastructure advancement) and one output variable (i.e., economic performance), we employ the Data Envelopment Analysis (DEA) technique in an attempt to make an efficiency comparison between the developed economies (i.e., OECD countries) and the less developed economies (i.e., non-OECD countries). Among the studied sample nations, Indonesia and Argentina are found to outperform other nations across all efficiency measures. Our findings also reveal a significant difference between the OECD and the non-OECD countries in terms of the scale efficiency and overall technical and scale efficiency. We recommend further studies to incorporate additional inputs/outputs (e.g., risk factor) in the DEA model and find innovative ways and means to facilitate the cross-country benchmark process.

JEL Classifications: C67, F01

Keywords: Country Competitiveness, Data Envelopment Analysis, Economic Efficiency

Corresponding Author's Email Address: hsum@uww.edu

(ProQuest: ... denotes formula omitted.)

INTRODUCTION

Countries were at the center of trade theories advanced by Adam Smith and David Ricardo. Given that trade liberalization and information technology have acted as main locomotives for the economic growth in the late 20th century (Bauer, Berger and Humphrey 1998; DeYong 1998) and that geographical distance is no longer the main barrier for international business, more attention should be placed on country research (e.g., country competitiveness) again. Indeed, for multi-national companies (MNCs) such as Gillette and Proctor & Gamble, their products have been launched all over the world, manufactured in fewer places, and coordinated by worldwide procurement (Kanter 1999). Decision makers at all levels (e.g., policy makers at the IMF or European Union, CEO at the MNCs, and/or international investors) could all benefit from country research.

We can easily get competitiveness or performance reports from public or private sources. To name a few, the World Competitiveness Yearbook (WCY) by the Institute for Management Development (IMD), the Global Competitiveness Report by the World Economic Forum (WEF), and the Global Country Forecast by the Economist Intelligence Unit (IEU). However, these institutions do not use the same criteria to compare the competitiveness of a country because, to date, there is no consistent definition about the national competitiveness. Though Reinert (1995) listed a number of definitions about competitiveness, all these definitions focus on how a country could perform on the global market in terms of productivity and market performance. Surprisingly, these competitive definitions neglected a key point that the level of economic development in different countries is not necessarily at that same level. Thus, it is hard to judge whether an investment in a highly developed country (e.g., Japan), when associated with a relatively higher costs (e.g., labor costs), is relatively more or less efficient than investing in a developing country (e.g., India).

It is in this context that the present paper attempts to make an efficiency comparison between the developed countries and the less developed countries. It is believed that our findings would facilitate MNCs and serious global investors to make more informed decisions on global expansion or investment. Moreover, policy makers may use the efficiency ranking to benchmark their own nation's performance with the peer nations. A unique feature of the present study is that it incorporates the Data Envelopment Analysis (DEA) technique (Charnes, Cooper, and Rhodes 1978) to measure the degree of relative efficiency of each country. As illustrated by the review of the DEA methodology in the following section, empirical evidence in the economic and international business literatures reveals the benefits of DEA in many occasions. …

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