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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 SA, 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, Policy Studies Institute.
    • Handle: RePEc:etd:wpaper:010
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    References listed on IDEAS

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    2. 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.

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    Keywords

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