The Impacts of Deregulation and Privatization on Cost Efficiency in New Zealand's Forest Industry

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Abstract:

In this paper, we investigate whether deregulation and privatization induced changes in cost efficiency within the New Zealand wood industry. Unlike previous work, the effects of privatization, deregulation, and removal of log export bans are compared to determine which shock had the most influence on efficiency changes. Cost efficiency is measured by estimating stochastic frontier models using the recent cost function approach, which does not suffer from the endogeneity problems associated with stochastic frontier production function estimation. The results show that cost efficiency decreased after each policy reform, but deregulation was more important in this regard than privatization. This suggests that countries with comparative advantages in wood processing, who also implement deregulation or privatization, may suffer through a short-run period of lower efficiency as the economy adjusts to higher input costs in those sectors. In New Zealand's case, the adjustments most likely affecting efficiency have been investments in new technologies, where time is required to attain maximum efficiency. The results are contrary to other studies that have predicted increased efficiency as a result of privatization. For. Sci. 46(1):40-51.

Keywords: Stochastic frontier models; forest sector; policy reforms

Document Type: Journal Article

Publication date: February 1, 2000

More about this publication?
  • Forest Science is a peer-reviewed journal publishing fundamental and applied research that explores all aspects of natural and social sciences as they apply to the function and management of the forested ecosystems of the world. Topics include silviculture, forest management, biometrics, economics, entomology & pathology, fire & fuels management, forest ecology, genetics & tree improvement, geospatial technologies, harvesting & utilization, landscape ecology, operations research, forest policy, physiology, recreation, social sciences, soils & hydrology, and wildlife management.
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