Technical efficiency performance of Thai manufacturing small and medium sized enterprises

This paper employs a stochastic frontier production function and technical inefficiency effects model to measure and explain the technical efficiency of Thai manufacturing small and medium sized enterprises (SMEs). Cross-sectional firm-level data from the industrial census conducted in 2007 is used. A simple average technical efficiency levels in all categories of manufacturing SMEs analysed in 2007 is found to be low, indicating a high degree of technical inefficiency in the production process. Despite reform measures aimed at improving firm performance, Thai manufacturing SMEs have remained predominantly labour intensive. The technical inefficiency effects model reveals that firm size, firm age, skilled labour, firm location, ownership type, foreign investment and exporting are key factors contributing to SME technical efficiency. The paper concludes that government policy have been largely ineffective and should place more attention on creating an enabling environment to foster SME growth, enhance technology and encourage the development of an environment, infrastructure and facilities conducive to enhancing the business operation of SMEs in order to enhance their technical efficiency.