Exports, foreign ownership, and firm-level efficiency in Ethiopia and Kenya

an application of the stochastic frontier model

Adugna Lemi, Ian Wright

Research output: Contribution to journalArticle

Abstract

Using the World Bank’s Enterprise Survey data for Ethiopia (2006 and 2011) and Kenya (2007 and 2013), this study empirically investigates the role of exports and foreign ownership in influencing firm-level efficiency. We use the stochastic frontier analysis to estimate a Cobb–Douglas production function with inefficiency introduced in the error term. We control for heterogeneity across firms by including firm size, type of industry, innovation activity, and employees’ characteristics in estimating the inefficiency equation. The results of the study show that, in both Ethiopia and Kenya, exporting helps firms lower technical inefficiency, whereas the share of foreign ownership has the expected positive sign but not statistically significant. The results also confirm that, in both countries, smaller firms and firms that employ temporary workers for a longer period tend to be less efficient. For Kenyan firms, years of work experience of managers help to lower technical inefficiency. However, innovation activities within a firm tend to raise technical inefficiency. For Ethiopian firms, years of work experience of managers do not lower inefficiency, and innovation activities do not appear to affect firms’ technical inefficiency. Our findings suggest that, even within Africa, not all policy tools result in similar outcomes. We conclude that policy-makers in Ethiopia and Kenya should look into implications of relevant respective variables of interest in designing appropriate industrial policy to improve firm efficiency in their industrialization endeavors.

Original languageEnglish (US)
Pages (from-to)1-30
Number of pages30
JournalEmpirical Economics
DOIs
StateAccepted/In press - Jul 9 2018

Fingerprint

Stochastic Frontier
Ethiopia
Kenya
firm
efficiency
Model
innovation
Tend
Business
Foreign firms
Foreign ownership
Stochastic frontier model
Production Function
manager
temporary worker
Survey Data
Error term
industrial policy
production function
World Bank

Keywords

  • Efficiency
  • Ethiopia
  • Exports
  • Foreign ownership
  • Kenya

ASJC Scopus subject areas

  • Statistics and Probability
  • Mathematics (miscellaneous)
  • Social Sciences (miscellaneous)
  • Economics and Econometrics

Cite this

@article{eb4e6872177d43229cf4df22f525e608,
title = "Exports, foreign ownership, and firm-level efficiency in Ethiopia and Kenya: an application of the stochastic frontier model",
abstract = "Using the World Bank’s Enterprise Survey data for Ethiopia (2006 and 2011) and Kenya (2007 and 2013), this study empirically investigates the role of exports and foreign ownership in influencing firm-level efficiency. We use the stochastic frontier analysis to estimate a Cobb–Douglas production function with inefficiency introduced in the error term. We control for heterogeneity across firms by including firm size, type of industry, innovation activity, and employees’ characteristics in estimating the inefficiency equation. The results of the study show that, in both Ethiopia and Kenya, exporting helps firms lower technical inefficiency, whereas the share of foreign ownership has the expected positive sign but not statistically significant. The results also confirm that, in both countries, smaller firms and firms that employ temporary workers for a longer period tend to be less efficient. For Kenyan firms, years of work experience of managers help to lower technical inefficiency. However, innovation activities within a firm tend to raise technical inefficiency. For Ethiopian firms, years of work experience of managers do not lower inefficiency, and innovation activities do not appear to affect firms’ technical inefficiency. Our findings suggest that, even within Africa, not all policy tools result in similar outcomes. We conclude that policy-makers in Ethiopia and Kenya should look into implications of relevant respective variables of interest in designing appropriate industrial policy to improve firm efficiency in their industrialization endeavors.",
keywords = "Efficiency, Ethiopia, Exports, Foreign ownership, Kenya",
author = "Adugna Lemi and Ian Wright",
year = "2018",
month = "7",
day = "9",
doi = "10.1007/s00181-018-1521-9",
language = "English (US)",
pages = "1--30",
journal = "Empirical Economics",
issn = "0377-7332",
publisher = "Physica-Verlag",

}

TY - JOUR

T1 - Exports, foreign ownership, and firm-level efficiency in Ethiopia and Kenya

T2 - an application of the stochastic frontier model

AU - Lemi, Adugna

AU - Wright, Ian

PY - 2018/7/9

Y1 - 2018/7/9

N2 - Using the World Bank’s Enterprise Survey data for Ethiopia (2006 and 2011) and Kenya (2007 and 2013), this study empirically investigates the role of exports and foreign ownership in influencing firm-level efficiency. We use the stochastic frontier analysis to estimate a Cobb–Douglas production function with inefficiency introduced in the error term. We control for heterogeneity across firms by including firm size, type of industry, innovation activity, and employees’ characteristics in estimating the inefficiency equation. The results of the study show that, in both Ethiopia and Kenya, exporting helps firms lower technical inefficiency, whereas the share of foreign ownership has the expected positive sign but not statistically significant. The results also confirm that, in both countries, smaller firms and firms that employ temporary workers for a longer period tend to be less efficient. For Kenyan firms, years of work experience of managers help to lower technical inefficiency. However, innovation activities within a firm tend to raise technical inefficiency. For Ethiopian firms, years of work experience of managers do not lower inefficiency, and innovation activities do not appear to affect firms’ technical inefficiency. Our findings suggest that, even within Africa, not all policy tools result in similar outcomes. We conclude that policy-makers in Ethiopia and Kenya should look into implications of relevant respective variables of interest in designing appropriate industrial policy to improve firm efficiency in their industrialization endeavors.

AB - Using the World Bank’s Enterprise Survey data for Ethiopia (2006 and 2011) and Kenya (2007 and 2013), this study empirically investigates the role of exports and foreign ownership in influencing firm-level efficiency. We use the stochastic frontier analysis to estimate a Cobb–Douglas production function with inefficiency introduced in the error term. We control for heterogeneity across firms by including firm size, type of industry, innovation activity, and employees’ characteristics in estimating the inefficiency equation. The results of the study show that, in both Ethiopia and Kenya, exporting helps firms lower technical inefficiency, whereas the share of foreign ownership has the expected positive sign but not statistically significant. The results also confirm that, in both countries, smaller firms and firms that employ temporary workers for a longer period tend to be less efficient. For Kenyan firms, years of work experience of managers help to lower technical inefficiency. However, innovation activities within a firm tend to raise technical inefficiency. For Ethiopian firms, years of work experience of managers do not lower inefficiency, and innovation activities do not appear to affect firms’ technical inefficiency. Our findings suggest that, even within Africa, not all policy tools result in similar outcomes. We conclude that policy-makers in Ethiopia and Kenya should look into implications of relevant respective variables of interest in designing appropriate industrial policy to improve firm efficiency in their industrialization endeavors.

KW - Efficiency

KW - Ethiopia

KW - Exports

KW - Foreign ownership

KW - Kenya

UR - http://www.scopus.com/inward/record.url?scp=85049658252&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=85049658252&partnerID=8YFLogxK

U2 - 10.1007/s00181-018-1521-9

DO - 10.1007/s00181-018-1521-9

M3 - Article

SP - 1

EP - 30

JO - Empirical Economics

JF - Empirical Economics

SN - 0377-7332

ER -