Measurement and sources of technical inefficiency in Ethiopian manufacturing industries

Course ID
Ethiopian Economics Association (EEA)
Daniel G.Hiwot

The inability of firms to operate at full capacities, the low levels of manufactured exports and the decline of labour and capital productivities for the decade are some reflections of technical inefficiencies among the Ethiopian manufacturing industries. In light of this, the level of technical efficiencies and factors that are attributable to the existing level of technical inefficiencies are investigated simultaneously using a panel data of 361 firms which are categorized under nine industrial groups (food processing, beverages, textile, leather, wood & furniture, paper & printing, chemical, rubber & plastics and non-metallic mineral manufacturing industries) during the study period, i.e. 1998-2002. The null hypothesis that all firms in each sub-sector are fully technically efficient is rejected for all sub-sectors and using the stochastic frontier model for panel data developed by Battese and Coelli (1995) it was found that the manufacturing industries mean technical efficiency ranges 62 and 80percent. This result indicated the existence of technical inefficiency among the Ethiopian manufacturing industries and there is a chance, at least in the short run, to increase their production only by improving their technical efficiency. Furthermore, the technical efficiency of firms was decreasing during the study period for most sub-sectors, except for textile and chemical industries. The null hypothesis that the inefficiency effects are not functions of the explanatory variables is also rejected for all industrial groups and hence, firm size, age of a firm, type of ownership, firm’s location around Addis Ababa and the amount of incentive paid to workers are found to be important variables in explaining the variation in technical efficiencies among the firms. Based on the results of the study a need arises to support Ethiopian manufacturing industries through provision of credit, better marketing strategies, training of workers, accelerating the slow pace of privatization and designing effective incentive payment strategies so that the existing levels of technical efficiencies could be enhanced and the level of production of the industries could be improved

Corporate Author: Getnet Alemu and Edilegnaw Wale (Editor) & Ethiopian Economic Association/Ethiopian Economic Policy Research Institute
Publisher: Ethiopian Economic Association (EEA)
ISBN/ISSN: 978-99944-54-05-1
Primary Descriptors: Technical efficiency

Secondary Descriptor: Stochastic frontier production functions

Geographic Descriptors: Ethiopia
Cataloge Date: 02/27/2013
Broad Subject heading: manufacturing industries
Call Number: 330.963 PRO 2009
Serial Key Title: Proceedings of the Fifth International Conference on the Ethiopian Economy
Publication catagory: International Conference
Content type: EEA Publication
Volume: I
Publication date: 2013-12-27 23:09:00
Forum or Discussion date: 2013-02-27 15:02:11
Place of publication: Addis Ababa, Ethiopia
Type of material: Book
Current frequency: Annualy
Author: Daniel G.Hiwot