This paper examines the impact of the adoption of Flexible Manufacturing Technology (FMT) on the Technical Efficiency of Malaysia Manufacturing Industry. Owing to the potential multicollinearity, the Principal Component Analysis has been adopted to extract the most appropriate underlying dimensions of FMT in an effort to substitute the eight FMT variables. The study has been conducted within FMT intensively adopted 16 three-digit industries that encompass 50 five-digit industries covering the years 2000-2005. The results obtained from the two situations, one, including the industry fixed effects dummy variables and the other without these, are contrasted. It is found that the model that included the industry fixed effect dummy variables possesses a greater explanatory power. The two principal components that account for the greater variation in FMT show positive and moderately significant relationship with TE. The study concludes with sufficient evidence that FMT has a direct and moderately significant relationship with TE.
D. J. Aigner, C. A. K. Lovell and P. J. Schmidt, “Formulation and Estimation of Stochastic Frontier Production Models,” Journal of Econometrics, Vol. 6, No. 1, 1977, pp. 21-37. doi:10.1016/0304-4076 77 90052-5
R. Mahadevan, “A Frontier Approach to Measuring Total Factor Productivity Growth in Singapore’s Services Sector,” Journal of Economic Studies, Vol. 29, No. 1, 2002, pp. 48-58. doi:10.1108/01443580210414111
R. Mahadevan and K. P. Kalirajan, “On Measuring Total Factor Productivity Growth in Singapore’s Manufacturing Industries,” Applied Economics Letters, Vol. 6, No. 5, 1999, pp. 295-298. doi:10.1080/135048599353267
G. Da Silveria and F. S. Fogliatto, “Effects of Technology Adoption on Mass Customisation Ability of Broad and Narrow Market Firms,” Gestao & Producao, Vol. 12 No. 3, 2005, pp. 347-359.
X. Zhang and S. Zhang, “Technical Efficiency in China’s Iron and Steel Industry: Evidence from the New Census Data,” International Review of Applied Economics, Vol. 15, No. 2, 2001, pp. 199-211.
J. D. Lee, T. A. Kim and E. Heo, “Technological Progress versus Efficiency Gain in Manufacturing Sectors,” Review of Development Economics, Vol. 2, No. 3, 1998, pp. 268-281. doi:10.1111/1467-9361.00041
G. Battese and S. S. Broca, “Functional Forms of Stochastic Frontier-Production Functions and Models for Technical Inefficiency Effects: A Comparative Study for Wheat Farmers in Pakistan,” Journal of Productivity Analysis, Vol. 8, No. 4, 1997, pp. 395-414.
E. R. Brendt and C. J. Morrsison, “High Tech Capital Formation and Economic Performance in USA Manufacturing Industries: An Exploratory Analysis,” Journal of Econometrics, Vol. 65, No. 1, 1995, pp. 9-43.
D. A. R. Dolage, A. B. Sade and M. A. Elsadig, “The Influence of Flexible Manufacturing Technology Adoption on Productivity of Malaysian Manufacturing Industry,” Economic Modelling, Vol. 27, No. 1, 2010, pp. 395-403. doi:10.1016/j.econmod.2009.10.005
L. H. Amato and C. H. Amato, “The Impact of High Tech Production Techniques on Productivity and Profitability in Selected US Manufacturing Industries,” Review of Industrial Organization, Vol. 16, No. 4, 2000, pp. 327-342.
D. A. R. Dolage and A. B. Sade, “The Impact of Adoption of Flexible Manufacturing Technology on Price Cost Margin of Malaysian Manufacturing,” Technology and Investment, Vol. 3, No. 1, 2012, pp. 26-35.
H. Margono and S. C. Sharma, “Efficiency and Productivity Analysis of Indonesian Manufacturing Industries,” Journal of Asian Economics, Vol. 17, No. 6, 2006, pp. 979-995. doi:10.1016/j.asieco.2006.09.004