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Total Factor Productivity and Technical Efficiency in the Ethiopian Manufacturing Sector

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  • Melaku T. Abegaz

    () (Department of Economics, Addis Ababa University)

Abstract

In this paper a Stochastic Frontier Model is used to examine the technical efficiency and total factor productivity (TFP) growth in the Ethiopian manufacturing sector over the period 1996– 2009. TFP growth is decomposed into technical change (progress), technical efficiency change, and scale effect. With a firm level unbalanced panel data collected by CSA, individual estimations are made for each industrial group categorized by two digit ISIC except a three digit ISIC for food and beverage industrial groups. The empirical results indicate existence of large inefficiencies, inefficiency that explains at least 14 percent of output variation among firms. TFP has shown better progress after 2001/02 and the growth is largely explained by technical change which is a shift in production frontier. The effect of efficiency change is very small as most industrial groups have time invariant efficiency. In addition, the scale effect is zero or very small because most industrial groups have constant returns to scale or small deviation from constant returns to scale.

Suggested Citation

  • Melaku T. Abegaz, 2013. "Total Factor Productivity and Technical Efficiency in the Ethiopian Manufacturing Sector," Working Papers 010, Ethiopian Development Research Institute.
  • Handle: RePEc:etd:wpaper:010
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    References listed on IDEAS

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    1. Mulu Gebreeyesus, 2008. "Firm turnover and productivity differentials in Ethiopian manufacturing," Journal of Productivity Analysis, Springer, vol. 29(2), pages 113-129, April.
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    3. John W. Kendrick, 1956. "Productivity Trends: Capital and Labor," NBER Books, National Bureau of Economic Research, Inc, number kend56-1.
    4. Subal Kumbhakar & M. Denny & M. Fuss, 2000. "Estimation and decomposition of productivity change when production is not efficient: a paneldata approach," Econometric Reviews, Taylor & Francis Journals, vol. 19(4), pages 312-320.
    5. Solomon Fabricant, 1954. "Economic Progress and Economic Change," NBER Books, National Bureau of Economic Research, Inc, number annu54-1.
    6. Erwin Diewert, 2000. "The Challenge of Total Factor Productivity," International Productivity Monitor, Centre for the Study of Living Standards, vol. 1, pages 45-52, Fall.
    7. Mahamat Hamit-Haggar, 2009. "Total Factor Productivity growth, Technological Progress, and Efficiency Changes: Empirical Evidence from Canadian Manufacturing Industries," Working Papers 0905E, University of Ottawa, Department of Economics.
    8. Solomon Fabricant, 1954. "Economic Progress and Economic Change," NBER Chapters,in: Economic Progress and Economic Change National Bureau of Economic Research, Inc.
    9. John Kendrick, 1956. "Productivity Trends: Capital and Labor," NBER Chapters,in: Productivity Trends: Capital and Labor, pages -3-23 National Bureau of Economic Research, Inc.
    10. Meeusen, Wim & van den Broeck, Julien, 1977. "Efficiency Estimation from Cobb-Douglas Production Functions with Composed Error," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 18(2), pages 435-444, June.
    11. 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.
    12. Sangho Kim & Mazlina Shafi'i, 2009. "Factor Determinants of Total Factor Productivity Growth in Malaysian Manufacturing Industries: a decomposition analysis," Asian-Pacific Economic Literature, Asia Pacific School of Economics and Government, The Australian National University, vol. 23(1), pages 48-65, May.
    13. Arne Bigsten & Mulu Gebreeyesus, 2007. "The Small, the Young, and the Productive: Determinants of Manufacturing Firm Growth in Ethiopia," Economic Development and Cultural Change, University of Chicago Press, vol. 55, pages 813-840.
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    Cited by:

    1. Hailu, Kidanemariam Berhe & Tanaka, Makoto, 2015. "A “true” random effects stochastic frontier analysis for technical efficiency and heterogeneity: Evidence from manufacturing firms in Ethiopia," Economic Modelling, Elsevier, vol. 50(C), pages 179-192.

    More about this item

    Keywords

    Ethiopian manufacturing; stochastic frontier analysis; technical change; technical efficiency; total factor productivity;

    JEL classification:

    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out

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