Public and private production of a private good: The case of cotton textile manufacturing industry in Bangladesh

The South Asian countries are engaged in liberalizing their economies in which a greater emphasis is being placed on the private sector and privatization to increase their growth rates. A greater emphasis on the private sector and economic measures such as privatization implicitly assume that private sector is more efficient in allocating and using scarce resources than the public sector. The primary objective of this dissertation is to examine this assumption and generate the hypothesis that there is no statistical difference in the comparative performance of public and private sectors in the production of a private good. This is done by searching for a theoretical underpinning for such an expectation within the property rights and industrial organization literature by taking the cotton textile manufacturing industry of Bangladesh as a case study. The cotton textile manufacturing industry of Bangladesh is chosen as a case study for two broad reasons. Firstly, it is characterized by both public and private ownership. Secondly, a significant number of mills were privatized in 1982. These two factors afford an examination of issues relating to comparative efficiency and consequences of privatization.;Frontier and average production function estimates are used to compare the managerial efficiency in a sample of public and private cotton textile mills of Bangladesh. The frontier production function approach, through the use of linear programming technique, yields mill specific efficiency ratios. A ranking of these ratios indicate that private sector mills, on the whole, are more efficient than public sector mills. In the second stage, these ratios are regressed against several management related independent variables across ownership categories. The results suggest superior managerial efficiency in private sector textile mills. Other factors such as capacity utilization, age, location, size are also found to be statistically significant in most cases. The results obtained through the use of average production function confirm these findings. Privatization in 1982 is found to have increased the efficiency of both privatized and non-privatized mills.