Analysis of the container port industry using efficiency measurement : a comparison of China with its international counterparts

Abstract

With the globalisation of the world economy, the container port industry is becoming increasingly important. This research is motivated by the contrast between the ever-mounting importance of the contemporary container port industry and the sparsity of scientific and in-depth research of the economic theories that underpin it. Despite the paramount importance of the container port industry for globalisation and international trade, many fundamental economic theories underpinning the container port production remain unknown and deserve to be thoroughly investigated. From a theoretical point of view, very few attempts have thus far been made to apply traditional economic theories to the container port industry. This research is also motivated by the vital role played by efficiency measurement in any sort of production and the dearth of such studies in the container port industry. Traditional approaches are confined to partial measures of productivity and not sophisticated enough to reflect the complexity of contemporary container port production and to provide enough insights on management or policy implications. In recent years, two leading approaches to measuring efficiency, Data Envelopment Analysis (DEA) and Stochastic Frontier Analysis (SFA), have been occasionally applied to ports or to the container port industry in order to measure their efficiency. However, the extant research in this aspect is far from sufficient. Among other reasons, the existing corpus of research is either based on strong assumptions, or has ignored the great variety and diverse nature of the available data (such as cross-sectional or longitudinal data). Against this background, this research contributes to the existing literature in three ways. First, the economic theories underpinning the container port production (such as the relationship between ownership, competition and port efficiency) are not only analysed by applying traditional economic theory (in particular the industrial organisation theory) but also examined empirically by deriving scientific estimates of efficiency. Most work in this aspect is original and, potentially, makes an important contribution to the establishment of central government policy on port investment, policy and governance. Secondly, for the first time, comprehensive comparisons of alternative approaches to efficiency measurement are conducted for the container port industry. These approaches include the two most well-known and commonly applied, Data Envelopment Analysis (DEA) and Stochastic Frontier Analysis (SFA), as well as some other important alternatives, such as the Free Disposal Hull (FDH) method. In addition, consideration is given to the use of panel data and to a random- and fixed-effects model. Due to the individual strengths and weaknesses associated with the various approaches to efficiency measurement, this sort of comparative study represents both a significant and necessary contribution to both the theoretical and empirical aspects of contemporary efficiency measurement. Finally, this study provides in-depth policy implications and managerial insights for China's government to optimise the future development of its port sector to the benefit of its wider economy and social welfare maximisation.