An analysis of the technical efficiency in Hong Kong's construction industry

This dissertation analyses the technical efficiency of the construction industry in Hong Kong. It has three major parts. The first part evaluates the technical efficiency ratios of the Hong Kong's construction industry using the non-parametric data envelopment analysis (DEA) technique. The nonparametric technique is used since it does not rely on any assumptions about the functional form of the underlying production function. Input and output data of the Hong Kong's construction industry down to 4-digit Hong Kong Standard Industrial Classification (HSIC) trade classification over the period 1981 and 1994 have been used. The data are not published but can be purchased from the Census and Statistics Department (CSD) of the Hong Kong Government. The second part attempts to explain the variation in the technical efficiency ratios among firms in sub-trade groups at different points in time. Hypotheses have been developed to explain such variations. The results suggest that larger construction firms are technologically more advanced and therefore have a higher degree of the technical efficiency. However, scale economy is exhausted up to a certain size. Capital intensive firms tend to have a lower technical efficiency ratio due to the higher level of idle capacity associated with these firms. Construction firms that subcontract a larger share of their work to subcontractors tend to have a lower level of the technical efficiency, while construction firms that use a lower proportion of intermediate input tend to have a higher level of the technical efficiency. The third part of the thesis develops and tests hypotheses concerning factors affecting the growth rate of the technical efficiency over time. Firstly, the upward movement of property prices is expected to have a negative effect on the growth rate of the technical efficiency in the construction industry. This influence is more serious for firms with a higher proportion of intermediate input. Secondly, the more capital-intensive firms, despite its lower efficiency level, tend to have a higher growth rate in the technical efficiency. Finally, the overall technical efficiency of the entire construction industry has been increasing at a decreasing rate over the observation period. All the hypotheses developed in the thesis are consistent with empirical observations in Hong Kong and are in general agreement with results of other relevant studies.