Exploring Production Function And Cost Efficiency Decomposition In China’s Iron And Steel Industry

Iron and steel industry of the national economy as the basic raw material industry, which has been as a supporting industry, support and promote the development of industry, agriculture, transportation, construction, military, and other industries. Iron and steel industry occupies an important position in the national economy, the steel industry is the most important basis for other industrial revolution and development, as well as iron and steel industry as a measure of a country’s economic development and national defense strength level mark. Under the appearance of rapid development, restricting the development potential of a series of internal factors inside the steel industry. For the steel industry high inventory, low prices, reduced profits and other series of problems, companies need to take positive action through the economic winter.In this paper, with reference to the development of the steel industry in developed countries, from the perspective of industrial development of the existing problems in China’s steel industry and future development trends are analyzed and studied. Firstly, China’s steel industry on the status of the investigation and fully tap the existence of problems in the steel industry and restrict the main contradiction of its development; then proposed calculation model estimates the steel industry production function, according to the representative of the 15 steel enterprises calculation results of market efficiency presumption steel industry production function is consistent with a linear function or exponential function. From a theoretical perspective, an improved method is proposed to allow decision makers to select the production function between linear and exponential forms under the assumption of variable returns-to-scale. From a practical perspective, the paper attempts to explore the production function form of 15 representative iron and steel companies in China. Furthermore, in determining the basis of the production function, the paper uses data envelopment analysis (DEA) method for China’s steel industry cost efficiency, and the cost efficiency is decomposed into technical efficiency and allocative efficiency in this context. The study found the cost efficiency of the companies are quite different; the geographical distribution of enterprises is an important factor affecting the cost, economies of scale do not work on the current steel market, and finally for inefficient companies made some constructive suggestions.