Sources of Heterogeneity in the Efficiency of Indian Pharmaceutical Firms

Using the non parametric approach of Data Envelopment Analysis (DEA) this paper examines the input and output efficiencies of the Indian pharmaceutical firms for the period 1991 to 2005. The analysis establishes that although the output efficiency level of firms reveals a declining trend, firms have been able to make efficient use of labour and raw material inputs. An analysis carried out to identify the determinants of output efficiency reveals that firms can attain higher efficiency by integrating with down-stream raw-material industry. We also find that increased spending in R&D related outlay is a possible strategic option for firms to gain higher efficiency
but it is applicable only to large-sized firms.

Keywords: Pharmaceutical, Efficiency, Data Envelopment Analysis (DEA), Non-Radial

JEL Classification: C14, C61, D21 L6