Human Capital and Technical Efficiency: An Analysis of the Stochastic Production Frontier and Inefficiency Effects Model for Thai manufacturing SMEs

Abstract

This paper employs the World Bank�s 2006 Enterprise Survey and the stochastic production frontier and inefficiency effects models to empirically investigate the significant impact of human capital, such as i) skilled workers' years of education, years of tenure and age, ii) workforce's education and iii) unskilled foreign workers, as well as iv) in-house and outside trainings for workers, v) firm size and vi) firm age on the technical efficiency of Thai manufacturing SMEs. The results of the study indicate that skilled workers and workforce's years of education and in-house and outside trainings for workers are significantly and positively related to the technical efficiency of Thai manufacturing SMEs, indicating that skilled workers and workforce's education with at least bachelor's degree and in-house and outside trainings play a key role in enhancing their technical efficiency. Firm age and unskilled foreign workers also contribute positively to their technical efficiency. These results imply that older SMEs tend to employ older machinery and equipment, while younger SMEs are equipped with modern technology. Thai SMEs benefit from hiring foreign unskilled labour due to an inexpensive source of workers. Firm size, however, is significantly and negatively related to their technical efficiency, implying that larger firms do not gain benefits from economies of scale and scope. Skilled workers' age and years of tenure are insignificantly related to their technical efficiency. The weighted average technical efficiency of Thai manufacturing SMEs is approximately 68.62 percent, signifying a moderate level of technical inefficiency which is reducing potential output. Empirically evidence-based



Author Information
Dean Keep, Swinburne University, Australia

Paper Information
Conference: ACBPP2014
Stream: Microeconomics

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