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Technical Efficiency, Allocative Efficiency and Profitability in Hungarian Small and Medium-Sized Enterprises: A Model with Frontier Functions

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  • Iván Major

Abstract

By applying a simple model of frontier production functions, this article shows that Hungarian small and medium-sized enterprises (SMEs) produce far below their feasible level, given their input endowment. The SMEs' under-production is rooted in the allocative inefficiency of small and medium-sized firms: they use labour in excess while they lack a sufficient level of capital assets. As a consequence of large inefficiencies, Hungarian SMEs improve profitability by scaling down production rather than by expansion.

Suggested Citation

  • Iván Major, 2008. "Technical Efficiency, Allocative Efficiency and Profitability in Hungarian Small and Medium-Sized Enterprises: A Model with Frontier Functions," Europe-Asia Studies, Taylor & Francis Journals, vol. 60(8), pages 1371-1396.
    • Handle: RePEc:taf:ceasxx:v:60:y:2008:i:8:p:1371-1396
    DOI: 10.1080/09668130802292200
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    Cited by:

    1. Ioan Batrancea & Ioan-Dan Morar & Ema Masca & Sabau Catalin & Liviu Bechis, 2018. "Econometric Modeling of SME Performance. Case of Romania," Sustainability, MDPI, vol. 10(1), pages 1-15, January.
    2. Kashika Arora & Areej A. Siddiqui & Biswajit Nag, 2020. "Devevloping Linkages Between Export Guarantees And Technical Efficiency Of Indian Firms," Working Papers 2045, Indian Institute of Foreign Trade.
    3. Szalavetz Andrea, 2015. "A Dynamic Capabilities Perspective of High-Growth Firms: Organizational Aspects," International Journal of Management and Economics, Warsaw School of Economics, Collegium of World Economy, vol. 48(1), pages 45-62, December.
    4. Zdeňka Náglová & Marie Šimpachová Pechrová, 2019. "Are Wine Producers With Subsidies More Technically Efficient?," Central European Business Review, Prague University of Economics and Business, vol. 2019(1), pages 1-14.
    5. Onwo, Isioma Nwabunor & Sylvester Favor Udeorah, Ph.D & Ijeoma Emele Kalu, Ph.D, 2021. "Ease of Doing Business, Trade across Borders and Profitability of Small and Medium-Size Enterprises in Port Harcourt," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 5(1), pages 293-299, January.
    6. Shamsuzzoha & Makoto Tanaka, 2021. "The role of human capital on the performance of manufacturing firms in Bangladesh," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(1), pages 21-33, January.
    7. Charoenrat, Teerawat & Harvie, Charles, 2014. "The efficiency of SMEs in Thai manufacturing: A stochastic frontier analysis," Economic Modelling, Elsevier, vol. 43(C), pages 372-393.
    8. Ferri Kuswantoro & M. Mohd Rosli & Radiah Abdul Kader, 2012. "Innovation In Distribution Channel(S) & Cost Efficiency On Small & Medium Enterprise Scales’ Performance In Indonesia," Journal of Global Entrepreneurship, Global Research Agency, vol. 3(1), pages 42-67, July.

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