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Productive Technical Efficiency of Ethiopian Basic Metals and Engineering Industries: a Stochastic Frontier Approach


This study figure out the level of technical efficiency and determinants of the Ethiopian Metals and Engineering industries overtime using stochastic frontier production function model. All the parameters of the frontier function and the inefficiency model have been estimated simultaneously using maximum likelihood estimation. The study considered one hundred forty six Metals and Engineering industries over the period of 2010 -2014 using firm level unbalanced panel data. The empirical result indicates that the time varied Translog functional form with maximum likelihood estimation better explains the production behavior of the Metals and Engineering industries .The study estimates the average technical efficiency of the Metals and Engineering industries is 55.3%.Therefore, the results indicate that there is a great potential exists for Metals and Engineering industries to further increase the value of production by 44.7% using the available input, technology and technical efficiency improvement, thereby reducing the cost of production. It is noted that out of the four technical inefficiency factors included in the Trans log model there were only two factors (investment intensity and labour capital ratio of firms) had significant effect on technical efficiency. The study further identifies that the average technical efficiency of Metals and Engineering industries vary among the industries and yearly average seems to be unstable during the study period. Therefore, in order to effectively utilize the potential of the industries, efforts have to be made in improving investment intensity, financial and nonfinancial capital access, availing raw material access and infrastructural and institutional development.

Corporate Author: 
Ethiopian Economics Association (EEA)
Ethiopian Economics Association (EEA)
Primary Descriptors: 

Basic Metals and Engineering industries

Secondary Descriptor: 

Stochastic production function, Technical efficiency

Geographic Descriptors: 
Cataloge Date: 
Broad Subject heading: 
Call Number: 
330.963 PRO 2018
Serial Key Title: 
Proceedings of the Fifteenth International Conference on the Ethiopian Economy
Publication catagory: 
Content type: 
Publication date: 
2018-06-01 00:00:00
Conference Place: 
EEA Multi-purpose Building Conference Hall, Addis Ababa
Place of publication: 
Addis Ababa
Type of material: 
Current frequency: 
Thematic area: 
Microeconomics, Industry and Social Sector Related
Conference date: 
July 20 – 22, 2017