An Empirical analysis of efficiency and productivity changes in Malaysian public higher education institutions

The efficiency and productivity of the higher education sector play crucial roles in the development and growth of a nation, both as a major source of human capital and as a main driver of the knowledge economy. During the last decade, the Malaysian government has placed greater emphasis on productivity improvement in the public higher education sector as means of promoting the development of quality human capital. This sector has undergone some fundamental changes, which have led to its rapid expansion. The implementation of the NHESP (National Higher Education Strategic Plan) in 2007 was the most important policy change in this area. This important policy focuses on the government’s agenda to turn Malaysia into a major regional hub for higher education. Despite the allocation of a large volume of funding into the sector, there has been no empirical study to show how public universities have performed either before or after this policy reform. The main aim of this study is to investigate empirically the measurement of technical efficiency and productivity changes in the Malaysian public higher education system from 2006 to 2009. By measuring technical efficiency and productivity changes among public universities in Malaysia, this study aims to address four main research questions related to the public higher education sector: a) What is the mean efficiency score of public higher education institutions in Malaysia? b) What is the total factor productivity (TFP) change for Malaysia\u27s public higher education institutions? c) Has the implementation of the NHESP led to improvements in the efficiency and productivity of the public higher education sector? and d) What are the major determinants of efficiency or inefficiency Malaysian universities? In this study, a non-parametric approach known as Data Envelopment Analysis (DEA) is applied to the inputs and outputs of Malaysian public universities to analyse empirically their technical efficiency and productivity. In addition, this study is the first to use a bootstrapped Malmquist method under the condition of variable Returns to Scale (VRS), as proposed by Simar and Wilson (1999), in the context of a developing country such as Malaysia. Furthermore, this study is also the first to employ a comprehensive decomposition of the Hicks-Moorsteen TFP index, developed by O’Donnell (2010b), to examine efficiency and productivity growth in the higher education sector. The empirical findings indicate that no matter which techniques were applied, the Universiti Sains Malaysia, Universiti Pendidikan Sultan Idris and Universiti Malaysia Pahang were consistently found to be the most efficient institutions across all the periods. The empirical findings also indicate that the overall mean efficiency scores under the two approaches across all Malaysian public universities suggest that these universities are operating at a reasonably high level of efficiency relative to each other, even though there is room for improvement in a number of universities. As well, the sector’s efficiency level decreased during 2006–2007, then significantly improved soon after the implementation of the NHESP in 2007–2008 and slightly declined again during 2008–2009. However, the overall efficiency gained during the entire sample period showed a significant improvement. These results suggest that the current policies, particularly the NHESP, played important roles in improving efficiency levels in this sector during the years examined. Thus, policy makers in the Ministry of Higher Education should give greater priority to initiating innovative policy and the redesign of current policy to further improve and sustain high overall economic efficiency levels in the higher education sector. In terms of productivity analysis the results indicate that under both approaches, the sector as a whole has experienced positive improvements in productivity during the period 2006–2009,particularly over the post-NHESP era (2008–2009). Under the bootstrapped Malmquist TFP index approach the major significant component of the sectoral TFP changes in all were technology changes (△Tech), and not the efficiency changs (△Eff). Under the Hicks-Moorsteen TFP index approach the key components of △TFP in the sector were changes in mix efficiency in addition to technical changes (△Tech). These findings are useful because they point out that under both approaches a technical change (△Tech) appears to have played major roles in TFP improvement in the sector. A general comparison of TFP changes in different sub-groups of universities reveals that in the pre-NHESP era (2006–2007) under both approaches, TFP improvements were achieved mainly within the focused universities, whereas in the post-NHESP period (2008–2009) all three university sub-groups (namely research universities, comprehensive universities and focused universities) benefitted from significant TFP rises. Therefore, one may conclude that the government’s higher education policies in the post-NHESP period have indiscriminately influenced the productivity and efficiency of Malaysian public universities. Overall, public universities in Malaysia have recorded a high level of improvement in productivity growth during the period of study, especially after the implementation of the NHESP. Moreover the DEA results also show improvements in technical efficiency. If these trends continue, the Malaysian public universities may move closer to the best practice exemplified by frontier universities. Nevertheless, the sector as a whole cannot attain its full potential if inefficiencies continue to exist. One may argue that the implementation of the NHESP in 2007 was probably the main driving force behind the enhanced efficiency and productivity growth of Malaysian public universities. Thus there are a number of important policy implications arising from the empirical university specific results of the present study that could lead to sustainability in efficiency and productivity growth of the higher education sector of Malaysia. In general, this thesis has made four significant contributions to fill the gap in the literature by providing empirical evidence related to the existing body of knowledge in regard to efficiency and productivity changes in the higher education sector. First, this study is the first to highlight the issue of efficiency and productivity change in the Malaysian public higher education sector using the DEA and TFP indices. Second, this is the first study to measure the efficiency of individual public higher education institutions in response to the significant policy changes initiated in 2007. Third, no previous study in developing countries has employed a bootstrapped Malmquist method under the assumption of VRS in the measurement of efficiency and productivity changes in higher education institutions. Lastly, to the best of my knowledge, this is the first study to use a new decomposition of the Hicks- Moorsteen TFP index in the context of higher education institutions so as to analyse efficiency and productivity changes