Factors Influencing the Efficiency of Malaysian Local Governments

Main Article Content

Julia Mohd Said
Husniyati Mohd Amin
Suhaiza Ismail


Research aim: This paper investigates the factors influencing the efficiency of Malaysian local governments. Three measures of efficiency are considered, namely (i) technical efficiency (TE), (ii) pure technical efficiency (PTE) and (iii) scale efficiency (SE).
Design/ Methodology/ Approach: This study uses secondary data from annual financial statements of local governments in Malaysia. Financial statements from 2008 to 2015 from 35 local governments were obtained. Panel regression based on the ordinary least square was used to examine the determinants of efficiency of the Malaysian local governments.
Research findings: The results reveal that the population size and value of assets have positive and significant influence on the PTE, economic independence has positive and significant influence on the TE and SE, while the dependence on tax revenues is found negatively and significantly associated with all the three measures of efficiency (i.e. TE, PTE and SE).
Originality/value: The paper provides empirical evidence on the determinants of efficiency of local governments in Malaysia. More importantly, the investigation on the factors was carried out for three measures of efficiency that are TE, PTE and SE.
Practitioner/ Policy implication: The findings offer useful information to the relevant local governments in improving their efficiency.
Research limitation: The present study has focused only on examining the efficiency of local government and has not been able to assess the effectiveness of these services.
Keywords: Determinants for Efficiency, Local Government, Malaysia
Type of article: Research paper
JEL Classification: H72


Download data is not yet available.

Article Details

Research Paper


Abdullah, S., Razak, A.A., Hanafi, M.H., & Jaafar, M. (2013). Implementation barriers of ISO 9000 within the Malaysian local government. International Journal of Quality and Reliability Management, 30(8), 853–876. https://doi.org/10.1108/IJQRM-Dec-2011-0160.
Avkiran, N.K. (1999). An application reference for data envelopment analysis in branch banking: helping the novice researcher. International Journal of Bank Marketing, 17(5), 206–220. https://doi.org/10.1108/02652329910292675
Balaguer-Coll, M.T., Prior, D., & Tortosa-Ausina, E. (2007). On the determinants of local government performance: A two-stage non-parametric approach. European Economic Review, 51(2), 425–451. https://doi.org/10.1016/j.euroecorev.2006.01.007
Benito, B., Bastida, F., & García, J.A. (2010). Explaining differences in efficiency: an application to Spanish municipalities. Applied Economics, 42(4), 515–528. https://doi.org/10.1080/00036840701675560
Benito-López, B., Moreno-Enguix, M.D.R., & Solana-Ibañez, J. (2011). Determinants of efficiency in the provision of municipal street-cleaning and refuse collection services. Waste Management, 31(6), 1099–1108. https://doi.org/10.1016/j.wasman.2011.01.019
Borger, B.D., & Kerstens, K. (1996). Cost efficiency of Belgian local governments: A comparative analysis of FDH, DEA, and econometric approaches. Regional Science and Urban Economics, 26(2), 145–170. https://doi.org/10.1016/0166-0462(95)02127-2
Cruz, N.F.D., & Marques, R.C. (2014). Revisiting the determinants of local government performance. Omega, 44, 91–103. https://doi.org/10.1016/j.omega.2013.09.002
Department of Statistics Malaysia (2016). Population Distribution and Basic Demographic Characteristic Report 2010. Retrieved from https://www.dosm.gov.my/
Donaldson, L. (2001). The contingency theory of organisations. Thousand Oaks, CA: Sage Publications.
Doumpos, M., & Cohen, S. (2014). Applying data envelopment analysis on accounting data to assess and optimise the efficiency of Greek local governments. Omega, 46, 74–85. https://doi.org/10.1016/j.omega.2014.02.004
Fogarty, J., & Mugera, A. (2013). Local Government Efficiency: Evidence from Western Australia. Australian Economic Review, 46(3), 300–311. https://doi.org/10.1111/j.1467-8462.2013.12015
Geys, B., & Moesen, W. (2009). Exploring sources of local government technical inefficiency: Evidence from Flemish municipalities. Public Finance and Management, 9(1), 1-29.
Ghobadian, A., & Ashworth, J. (1994). Performance Measurement in Local Government – Concept and Practice. International Journal of Operations and Production Management, 14(5), 35–51. https://doi.org/10.1108/01443579410056786.
Grötsch, V.M., Blome, C., & Schleper, M.C. (2013). Antecedents of proactive supply chain risk management – a contingency theory perspective. International Journal of Production Research, 51(10), 2842–2867. https://doi.org/10.1080/00207543.2012.746796
Hauner, D. (2008). Explaining Differences in Public Sector Efficiency: Evidence from Russia’s Regions. World Development, 36(10), 1745–1765. https://doi.org/10.1016/j.worlddev.2007.09.011
Ibrahim, F., & Karim, M.Z. (2004). Efficiency of local government in Malaysia and its correlates. International Journal of Management Studies, 11(1), 57-70.
Kalb, A., Geys, B., & Heinemann, F. (2011). Value for money? German local government efficiency in a comparative perspective. Applied Economics, 44(2), 201–218. https://doi.org/10.1080/00036846.2010.502110
Mehdi, R.E., & Hafner, C.M. (2014). Local Government Efficiency: The Case of Moroccan Municipalities. African Development Review, 26(1), 88–101. https://doi.org/10.1111/1467-8268.12066
Local Government Department. (2015). Local Authority Statistics. Retrieved from http://jkt.kpkt.gov.my/
Loikkanen, H.A., & Susiluoto, I. (2005). Cost efficiency of Finnish municipalities in basic service provision 1994-2002.
Ngah, K. (2011). The future challenges of local authorities in Malaysia: A case study in Seberang Perai, Penang. African Journal of Business Management, 5(26). https://doi.org/10.5897/AJBM11.1445
Osman, M.M., Bachok, S., Bakri, N.I.M., & Harun, N.Z. (2014). Government Delivery System: Effectiveness of Local Authorities in Perak, Malaysia. Procedia Social and Behavioral Sciences, 153, 452–462. https://doi.org/10.1016/j.sbspro.2014.10.079
Phang, S.N. (2008). Decentralisation or Recentralisation? Trends in local government in Malaysia. Commonwealth Journal of Local Governance, 1, 126–132. https://doi.org/10.5130/cjlg.v1i0.759
Public Complaints Bureau. (2016). Statistics by year. Retrieved from http://www.pcb.gov.my/
Revelli, F., & Tovmo, P. (2007). Revealed yardstick competition: Local government efficiency patterns in Norway. Journal of Urban Economics, 62(1), 121–134. https://doi.org/10.1016/j.jue.2006.11.004
Storto, C.L. (2013). Evaluating Technical Efficiency of Italian Major Municipalities: A Data Envelopment Analysis model. Procedia Social and Behavioral Sciences, 81, 346–350. https://doi.org/10.1016/j.sbspro.2013.06.
Wadongo, B., & Abdel-Kader, M. (2014). Contingency theory, performance management and organisational effectiveness in the third sector. International Journal of Productivity and Performance Management, 63(6), 680–703. https://doi.org/10.1108/IJPPM-09-2013-0161
Wibowo, A., & Alfen, H.W. (2015). Benchmarking the efficiencies of Indonesia’s municipal water utilities using Stackelberg data envelopment analysis. Benchmarking: An International Journal, 22(4), 588–609. https://doi.org/10.1108/BIJ-01-2014-0009
Yahaya, N., & Larsen, I. B. (2008). Federalising solid waste management in peninsular Malaysia. In Proceeding of International Solid Waste Association (ISWA) World Congress, Singapore.