Sectoral technical efficiency and its determinants in Turkish manufacturing: Evidence from a stochastic frontier model

This thesis investigates the determinants of profitability-based efficiency among Turkish two-digit manufacturing industries using a Stochastic Frontier Model (SFM) with inefficiency effects for the period 2019–2023. Motivated by the limitations of traditional production-based efficiency studies and the structural heterogeneity of Turkish manufacturing, the study employs Return on Assets (ROA) as the frontier output to capture financial performance across sectors with diverse technologies, cost structures, and product mixes. A stochastic profit frontier is estimated using liquidity, leverage, and inventory turnover as core determinants of profitability, while inefficiency is modeled as a function of fixed-asset structure, interest-coverage capacity, R&D intensity, operating expenses, and the COVID-19 pandemic period. The empirical results show that liquidity and inventory turnover significantly enhance profitability, whereas high leverage reduces sectors' ability to reach the profit frontier. Inefficiency effects indicate that stronger equity-backed capital structures, higher debt-servicing capacity, and greater R&D investment reduce inefficiency, while high operating expenses increases it. The pandemic dummy confirms substantial efficiency losses during COVID-19. Variance parameters reveal that approximately 39 percent of profitability variation stems from structural inefficiency rather than random shocks, validating the use of a stochastic frontier framework. Technical efficiency scores demonstrate a clear hierarchy: high-technology industries, including electronics, motor vehicles, and pharmaceuticals, operate near the frontier, while traditional industries such as textiles, wood products, and apparel exhibit persistent inefficiency. Pandemic-period comparisons reveal intensified disparities between advanced and low-technology sectors. Overall, the thesis provides one of the first profitability-based frontier assessments of Turkish manufacturing and highlights the critical roles of financial resilience, innovation capacity, and cost-structure modernization in strengthening sectoral efficiency and competitiveness.