"background": "Persistent inefficiencies in manufacturing plant systems undermine industrial competitiveness and policy efficacy. Existing cost-effectiveness analyses often fail to account for the hierarchical structure of plant data, where operational units are nested within firms and regions, leading to potentially biased estimates. ", "purpose and objectives": "This policy analysis develops and applies a novel multilevel regression framework to diagnose cost-effectiveness in manufacturing systems. It aims to quantify the variance attributable to different organisational levels and identify key leverage points for policy intervention. ", "methodology": "A three-level random intercepts model is specified: ijk = \0 + \ X{ijk + uk + vjk + eijk, where i, j, and k index plants, firms, and regions respectively. The analysis uses plant-level operational and financial data, with inference based on restricted maximum likelihood estimation and robust standard errors. ", "findings": "Approximately 40% of the variance in cost inefficiency was attributable to regional-level factors, surpassing firm-level (25%) and plant-level (35%) components. A one-standard-deviation increase in regional supplier density was associated with a 7. 2% reduction in unit production costs (95% CI: 5. 1% to 9. 3%). ", "conclusion": "The multilevel approach reveals that systemic cost drivers are significantly embedded in regional industrial ecosystems, not merely within firm or plant boundaries. This necessitates a shift in policy focus from firm-centric support to enhancing regional production networks. ", "recommendations": "Policy should prioritise the development of regional industrial clusters and shared supplier infrastructure. Incentive programmes must be redesigned using multilevel diagnostics to target interventions at the appropriate spatial and organisational scale. ", "key words": "multilevel modelling, industrial policy, manufacturing efficiency, cost diagnostics, spatial analysis", "contribution statement": "This article provides a novel methodological framework for decomposing cost-effectiveness across hierarchical levels in industrial systems, offering policymakers
Merwe et al. (Wed,) studied this question.
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