Total Factor Productivity Analysis Of The Water Services Industry In Malaysia
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Date
2020-12
Authors
Goh, Kim Huat
Journal Title
Journal ISSN
Volume Title
Publisher
Universiti Sains Malaysia
Abstract
The interest in evaluating the total factor productivity of the water services industry has increased following the regulatory reform of the industry. In Malaysia, a visionary effort has been taken by the federal government on restructuring the water services industry to ensure its financial viability of water operators and to address the non-revenue water (NRW). Multitudes of initiatives as well as regulations have been introduced and implemented for the improvement of the water services industry productivity. However, there is lacking of studies conducted to assess the impact of the regulatory reform to the water services industry productivity. Therefore, the main objective of this study is to evaluate the total factor productivity (TFP) change in the water services industry in Malaysia before and after the regulatory reform. The study applies the bootstrap Malmquist Luenberger productivity index and integrates the undesirable output of NRW for the Malaysian water services industry. This study also aims to determine the drivers contributing to the TFP change in the 14 water operators before and after the regulatory reform. Moreover, this study is first attempt to capture five explanatory variables (regulatory reforms, customer density, domestic water consumption, production cost, and reserve margin) as determinants to explain the variation of productivity change in the industry. The results confirmed that during the study period, the industry experienced a deterioration in the average productivity of 0.57%, which is mainly attributed to the technical regression that occurred at an annual rate of 1.05%. At the water operator level, the water operators that exhibited a greater magnitude of technical regression tended to experience a negative productivity value changes following the regulatory reforms. The results also showed that regulatory reforms, production costs, and reserve margin are negatively correlated with productivity change. Reforms are essential but insufficient to improve the industry productivity. Thus, the government and water regulators should revise the existing policies and redefine the regulatory reforms of the water services industry. The use of advanced quantitative approaches to analyse the water services industry in Malaysia calls for a better understanding of the TFP change in the industry related to the key issues of regulatory reform.
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Keywords
Productivity Analysis