Sector Switching: An Unexplored Dimension of Firm Dynamics in Developing Countries



36).22 There is also a relatively high level of variation across sectors in the extent of
foreign participation (FR) ranging from 3.1 percent in “Publishing and printing” (ISIC
22) where there is high degree of state involvement to 61.6 percent in “Radio and
communication equipment” (ISIC 32). The sector concentration ratio (CR) shows very
high concentration ratios in “Basic Metals” (ISIC 27 - 49.2 percent) and in “Medical
and optical instruments” (ISIC 33 - 50.3 percent). Fourthly, the average sector
efficiency score is particularly high for the “”Fabricated metal products” (ISIC 28),
“Furniture” (ISIC 36) and “Wearing apparel” (ISIC 18), closely followed by sectors
such as “Wood and wood products” (ISIC 20), “Paper and paper products” (ISIC 21),
“Rubber and rubber products” (ISIC 25), “Machinery and equipment” (ISC 29) and
“Radio and communication equipment” (ISIC 32). At the other end, we find “Repairing
of other transport equipment” (ISIC 35), “Electrical machinery and appliances” (ISIC
31) and “Medical and optical instruments” (ISIC 33). Finally, summary statistics for the
effective rate of protection (ERP) reveal that “Food processing” (ISIC 15), “Textiles”
(ISIC 17), “Wearing Apparel” (ISIC 18) and “Assembling/repairing of motor vehicles”
(ISIC 34) were highly protected sectors in the period under study.

[TABLE 5 ABOUT HERE]

5. Empirical results

5.1 Production function estimation and efficiency

Our model is estimated separately for each two-digit sub-sector described in Table 1
using Frontier Version 4.1 (Coelli, 1996). As discussed in Section 3, parametric
approaches to production function estimation require restrictions on the technology
underlying the production process. A series of specification tests is performed to ensure
an appropriate functional form for each production function (see Table B in the
Appendix). While the model should be as flexible as possible, this should not come at
the price of theoretical inconsistency. Tests for the theoretical consistency of the

22 Note that not all firms labelled as state owned firms have 100 percent state ownership. For example, for
“Publishing and printing” (ISIC 22) 76.2 percent of output in the sector is produced by a firm with at least
50 percent state ownership.

15



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