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Firm Growth and Technical Efficiency in Ethiopia: The Role of Firm Size and Finance

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  • Habtamu Tesfaye Edjigu

Abstract

The performance of manufacturing firms can play a crucial rule in spurring economic growth and international competency. However, it has received little attention in developing countries particularly in Sub-Saharan Africa (SSA). Using firm level data from 2000 to 2008 survey, this paper empirically investigates the key determinants of growth and technical efficiency of Ethiopian manufacturing establishments focusing on the impact of size and finance. The empirical result using dynamic panel data estimation suggest that small and young firms grow more rapidly. Leverage ratio and cash flow are also main determinants of firm growth. However, they have heterogeneous effect. While, the availability of internal finance significantly affect the growth of smaller firms, leverage (borrowing) represent a binding constraint for growth of large firms. Firm¡¯s asset, labour quality, ownership and legal status are also binding constraints for growth of firm in Ethiopia. Moreover, a stochastic frontier analysis of the production function shows that there is significant difference in efficiency scores across firms. The result shows that efficiency score increases with firm size and cash flow but decrease with borrowing.

Suggested Citation

  • Habtamu Tesfaye Edjigu, 2016. "Firm Growth and Technical Efficiency in Ethiopia: The Role of Firm Size and Finance," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 8(10), pages 1-13, October.
    • Handle: RePEc:ibn:ijefaa:v:8:y:2016:i:10:p:1-13
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    Cited by:

    1. Yordanos Gebremeskel & Bupe Simuchimba & Chonzi Mulenga, 2019. "Skills Gap, Innovation, and Firms Performance in Zambia," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 11(8), pages 129-129, August.
    2. Iman Cheratian & Saleh Goltabar & Hassan Gholipour Fereidouni & Mohammad Reza Farzanegan, 2023. "External Financing and Firm Growth: Evidence from Micro, Small, and Medium Enterprises in Iran," MAGKS Papers on Economics 202308, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).

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    More about this item

    Keywords

    firm growth; technical efficiency; panel data; system GMM; Ethiopia;
    All these keywords.

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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