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Estimating and analysing cost efficiency of sawmill industries in Nigeria: A stochastic frontier approach

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  • Kolawole Ogundari

Abstract

Purpose – The purpose of this paper is to examine cost efficiency and its determinants in Nigerian sawmill industries. Design/methodology/approach – A stochastic frontier model is employed on a total of 160 mills randomly selected across five states in south-western Nigeria in 2006. Findings – The results show an estimated average cost efficiency of 1.262. This suggests that an average mill incurs about 26 per cent costs above the frontier cost when processing planks from logs. Further analysis indicates that a significant level of cost ineffisciency is present in Nigeria's sawmilling industry. Analysis of determinants of cost efficiency reveals that more years of education, experience, age, and level of capital investment reduce cost inefficiencies between 7 and 16 per cent. Sawmill operation is found to be associated with economies of scale in the study area. Originality/value – The paper contributes to existing studies on the efficiency of sawmill industries in Nigeria by taking a holistic assessment of the industry from a cost perspective.

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Bibliographic Info

Article provided by Emerald Group Publishing in its journal China Agricultural Economic Review.

Volume (Year): 2 (2010)
Issue (Month): 4 (November)
Pages: 420-432

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Handle: RePEc:eme:caerpp:v:2:y:2010:i:4:p:420-432

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Related research

Keywords: Cost effectiveness; Forestry; Nigeria; Process efficiency;

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  1. Johannes Sauer & Klaus Frohberg & Henrich Hockmann, 2006. "Stochastic efficiency measurement: The curse of theoretical consistency," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 139-166, May.
  2. Ryan, David L. & Wales, Terence J., 2000. "Imposing local concavity in the translog and generalized Leontief cost functions," Economics Letters, Elsevier, vol. 67(3), pages 253-260, June.
  3. Wilson, Paul & Hadley, David & Asby, Carol, 2001. "The influence of management characteristics on the technical efficiency of wheat farmers in eastern England," Agricultural Economics, Blackwell, vol. 24(3), pages 329-338, March.
  4. Aigner, Dennis & Lovell, C. A. Knox & Schmidt, Peter, 1977. "Formulation and estimation of stochastic frontier production function models," Journal of Econometrics, Elsevier, vol. 6(1), pages 21-37, July.
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