Erkie Asmare 1 and Andualem Begashaw

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Erkie Asmare
1
* and Andualem Begashaw
2
1
Bahir Dar Fisheries and Other Aquatic Life Research Center, Ethiopia
2
Department of Agricultural Economics, Mizan Tepi University, Ethiopia
*Corresponding author:
Erkie Asmare Beyene, Bahir Dar Fisheries and Other Aquatic Life Research Center, Bahir Dar, Ethiopia, Tel: +251 
918271253; Email: 
Submission:
July 06, 2018;
 Published:
August 15, 2018
Review on Parametric and Nonparametric
Methods of Efficiency Analysis
Introduction 
A country’s ability to improve its standard of living over time 
depends almost entirely on its ability to raise its output per a work-
er [1]. Efficiency study is an important area of economic analysis 
that has attracted the attention of economists, especially in the last 
three decades [2]. According to Kuosmanen T et al. [1] efficiency 
analysis is an important and extensive research area that provides 
answers to such essential questions as: Who are the best perform-
ing firms and can we learn something from their behavior? What 
are the sources of efficiency differences across firms? Can efficiency 
be improved by government policy or better managerial practices? 
Are there benefits to increasing the scale of operations?
Assessing efficiency for different levels of economic sectors has 
relevant practical implications, and thus, efficiency has become an 
essential research field [3]. International literature contains a large 
number of surveys and case studies dealing with efficiency, which 
represents the key factor to reach the global target of sustainable 
development [3]. Particularly, parametric frontier models and non-
parametric methods of efficiency analysis become dominated in the 
field of efficiency analysis [3-5]. These two approaches have been 
employed as a measure of Economic Efficiency (EE) of various sec
-
tors [6]. Majority of efficiency studies have been motivated by the 
desire to estimate or measure economic efficiency based on either 
parametric or non-parametric frontier methods. 
Unfortunately, there no commonly accepted methodology of 
efficiency analysis currently [1]. In addition, the choice of estima
-
tion method has been an issue of debate, with some researchers 
preferring the parametric and others the non-parametric approach 
[1,7]. Since both parametric and non-parametric techniques have 
their own merits, the selection of a suitable estimation method has 
been quite controversial. Furthermore, the choice of an estimation 
approach can influence the conclusion of efficiency and policy im
-
plications derived from the analyses [6]. In contrary to this, Toma 
P et al. [3] and Hildreth et al. [8] reported that the two approaches 
of efficiency measures (parametric and non-parametric methods) 
achieve highly correlated results in most cases.
Therefore bridging the gap between these two methods of effi
-
ciency analysis have been one of the most important issues in the 
field of efficiency analysis. Hence, this review paper contributes