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

Maman Setiawan (Faculty of Economics and Business, Padjadjaran University, Bandung, Indonesia)
Alfons G.J.M. Oude Lansink (Department of Business Economics, Wageningen University, Wageningen, The Netherlands)

British Food Journal

ISSN: 0007-070X

Article publication date: 2 January 2018

Abstract

Purpose

The 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/approach

This 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.

Findings

The 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/value

The 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.

Keywords

Citation

Setiawan, M. and Oude Lansink, A.G.J.M. (2018), "Dynamic technical inefficiency and industrial concentration in the Indonesian food and beverages industry", British Food Journal, Vol. 120 No. 1, pp. 108-119. https://doi.org/10.1108/BFJ-04-2017-0226

Publisher

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Emerald Publishing Limited

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