Economic Affairs

The present paper attempts to evaluate the performance of Indian Yarn Industry and so focuses primarily on estimation of efficiency scores for IYI using its firm level data. Also it determines the major encouraging factors of firm level efficiency of IYI. The originality of this study is that it considers the potential simultaneous link between many factors influencing efficiency. The result shows that majority of firms have a mean Technical Efficiency (TE) greater than the average mean. The average TE of all firms combined indicates that on average, IYI generates 77% of the maximum producible output. The results of determinants of TE reveals that Advertising intensity of previous period is found to have a non-linear i.e. inverted U-shaped relationship with TE whereas Firm size and Research and Development Intensity are positively related with TE. On the contrary, Net export intensity is found to have a linear and negative relationship with TE. The relation between Firm Age and TE is found to be linear and positive. The effect of dismantling of MFA has a negative and significant effect on TE compared to the MFA period for IYI. The analysis reveals that in order to promote firm level technical efficiency of IYI, any policy changes that will lead to increase in Firm Size, Research and Development and Advertisement should be emphasized.