Estimating the Three-Stage Cost Malmquist Productivity Index in the Taiwan Biotech and Biopharmaceutical Industry ∗

This paper estimates and decomposes the output-oriented three-stage cost Malmquist productivity index of the Taiwanese biotech and biopharmaceutical (B&BP) industry in 2004-2007 periods. The empirical estimations proceed in three stages. Following the methodology of Yang and Huang (2009) with the assumption of variable return to scale (VRS) in the first stage, the original cost Malmquist productivity index (CM) is decomposed into five sources of productivity change: pure technical efficiency change, technical change, allocative efficiency change (AEC), input-price effect, and cost scale efficiency change. The method of Yang and Huang (2009) is an excellent contribution, but it did not deal with the exogenous environmental variables and noises. In the second stage, the original input variables are adjusted by the exogenous environmental variables. Finally, adjusted input variables produced by the second stage are reused for obtaining the reality of CM in the third stage.