Age-size effects in productive efficiency: a second test of the passive learning model
Several studies in developed economies have reported that the rate of growth of small firms decreases with firm age as well as size. The result is consistent with Jovanovic`s (1982) version of the passive learning model of competetive selection and is confirmed by data on a random sample of manufacturing firms in Ethiopia. This paper uses the Ethiopian data to test for three other implications of the Jovanovic model. These link age-size effects in firm growth to an underlying distribution of firms by technical efficiency, but have not been investigated empirically before.We find that firstly, the age-size effects detected in the growth of firms in our sample are matched by time-invariant inter-firm differences in technical efficiency. Secondly, there are also age-size effects in efficiency whereby bigger firms are more efficient given age, and older firms are more efficient given size. Thirdly, firm age and firm size mainly proxy for owner human capital and location variables in as far as they explain efficiency scores. In other words, it is not the case that some firms are more efficient than others because they are bigger or older but the other way round some firms are bigger or longer lived than others because they have proved to be more efficient. Advantageous location is a major source of technical efficiency but is not as important as greater entrepreneurial human capital. Among the human capital variables considered, the level of formal education completed has by far the strongest influence on efficiency scores. The owner`s access to business networks and his or her ethnicity also have signficant effects. On the other hand, there is no evidence that efficiency depends on any one of pre-ownership employment experience, occupational following of parents or prior vocational training.
|Date of creation:||01 Jul 1995|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.economics.ox.ac.uk/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kalirajan, K P, 1990. "On Measuring Economic Efficiency," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 5(1), pages 75-85, January-M.
- Liu, Lili, 1993. "Entry-exit, learning, and productivity change Evidence from Chile," Journal of Development Economics, Elsevier, vol. 42(2), pages 217-242, December.
- 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.
- Pitt, Mark M. & Lee, Lung-Fei, 1981. "The measurement and sources of technical inefficiency in the Indonesian weaving industry," Journal of Development Economics, Elsevier, vol. 9(1), pages 43-64, August.
- Robert W. Fairlie & Bruce D. Meyer, 1994. "The Ethnic and Racial Character of Self-Employment," NBER Working Papers 4791, National Bureau of Economic Research, Inc.
- George J. Borjas, 1991.
"Ethnic Capital and Intergenerational Mobility,"
NBER Working Papers
3788, National Bureau of Economic Research, Inc.
- Hausman, Jerry A, 1978.
"Specification Tests in Econometrics,"
Econometric Society, vol. 46(6), pages 1251-71, November.
- Battese, George E. & Coelli, Tim J., 1988. "Prediction of firm-level technical efficiencies with a generalized frontier production function and panel data," Journal of Econometrics, Elsevier, vol. 38(3), pages 387-399, July.
- 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 435-44, June.
- Jovanovic, B. & Macdonald, G.M., 1988.
RCER Working Papers
160, University of Rochester - Center for Economic Research (RCER).
- Boyan Jovanovic & Glenn MacDonald, 1993. "Competitive Diffusion," NBER Working Papers 4463, National Bureau of Economic Research, Inc.
- Jovanovic, Boyan & MacDonald, Glenn M., 1988. "Competitive Diffusion," Working Papers 88-29, C.V. Starr Center for Applied Economics, New York University.
- Jovanovic, B. & MacDonald, G.M., 1991. "Competitive Diffusion," Papers 92-08, Rochester, Business - Financial Research and Policy Studies.
- Macdonald, G.M., 1988. "Competitive Diffusion," University of Chicago - Economics Research Center 88-10, Chicago - Economics Research Center.
- Douglas Holtz-Eakin & David Joulfaian & Harvey S. Rosen, 1993.
"Sticking it Out: Entrepreneurial Survival and Liquidity Constraints,"
NBER Working Papers
4494, National Bureau of Economic Research, Inc.
- Holtz-Eakin, Douglas & Joulfaian, David & Rosen, Harvey S, 1994. "Sticking It Out: Entrepreneurial Survival and Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 102(1), pages 53-75, February.
- Douglas Holtz-Eakin & David Joulfaian & Harvey Rosen, 1993. "Sticking It Out: Entrepreneurial Survival and Liquidity Constraints," Working Papers 698, Princeton University, Department of Economics, Industrial Relations Section..
- Evans, David S., 1986.
"Tests of Alternative Theories of Firm Growth,"
86-36, C.V. Starr Center for Applied Economics, New York University.
- Kumbhakar, Subal C & Ghosh, Soumendra & McGuckin, J Thomas, 1991. "A Generalized Production Frontier Approach for Estimating Determinants of Inefficiency in U.S. Dairy Farms," Journal of Business & Economic Statistics, American Statistical Association, vol. 9(3), pages 279-86, July.
- Bernard F. Lentz & David N. Laband, 1990. "Entrepreneurial Success and Occupational Inheritance among Proprietors," Canadian Journal of Economics, Canadian Economics Association, vol. 23(3), pages 563-79, August.
- Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May.
- Tybout, James & de Melo, Jamie & Corbo, Vittorio, 1991.
"The effects of trade reforms on scale and technical efficiency : New evidence from Chile,"
Journal of International Economics,
Elsevier, vol. 31(3-4), pages 231-250, November.
- Tybout, James & de Melo, Jaime & Corbo, Vittorio, 1990. "The effects of trade reforms on scale and technical efficiency : new evidence from Chile," Policy Research Working Paper Series 481, The World Bank.
- Variyam, Jayachandran N. & Kraybill, David S., 1992. "Empirical evidence on determinants of firm growth," Economics Letters, Elsevier, vol. 38(1), pages 31-36, January.
- Bauer, Paul W., 1990. "Recent developments in the econometric estimation of frontiers," Journal of Econometrics, Elsevier, vol. 46(1-2), pages 39-56.
- Forsund, Finn R. & Lovell, C. A. Knox & Schmidt, Peter, 1980. "A survey of frontier production functions and of their relationship to efficiency measurement," Journal of Econometrics, Elsevier, vol. 13(1), pages 5-25, May.
- Bates, Timothy, 1990. "Entrepreneur Human Capital Inputs and Small Business Longevity," The Review of Economics and Statistics, MIT Press, vol. 72(4), pages 551-59, November.
- Page, John M, Jr, 1980. "Technical Efficiency and Economic Performance: Some Evidence from Ghana," Oxford Economic Papers, Oxford University Press, vol. 32(2), pages 319-39, July.
When requesting a correction, please mention this item's handle: RePEc:oxf:wpaper:wps/1996-02. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Caroline Wise)
If references are entirely missing, you can add them using this form.