DEA AND STOCHASTIC FRONTIER ANALYSES OF THE 1978 CHINESE ECONOMIC-REFORMS

Using data obtained from Chinese sources for the period 1966-88, this paper reports results from a study of the impact of the 1978 economic reforms for the period 1966-88 on the Textiles, Chemicals and Metallurgical Industries. In all three, the effects were found to be dramatic and manifested almost immediately in: (1) drastic changes in capital-to-labor ratios; (2) large increases in output; and (3) significant increases in efficiency. DEA (Data Envelopment Analysis) and SF (Stochastic Frontier Analysis) provide analytic frameworks which are interpreted as follows. Via its single optimization over all observations, SF estimates are addressed to behavior across all periods while n optimizations used in DEA (one for each observation) are addressed to performances in each of the periods that are applicable for effecting its evaluations. Although based on different principles and treating the data in different ways, these two different approaches to performance evaluation, as used here, provide confirmation of each other's findings. The adjustments to the data obtained from efficiency evaluations in these two approaches are also used to show that trends underlying the observed behavior would have accelerated under fully efficient production. The joint use made here of DEA and SF contrasts with points of view that have regarded these two approaches as mutually exclusive alternatives. A new ratio measure of efficiency is also introduced in furtherance of DEA as a body of concepts in its own right.