Impact of Unconducive Macro-Business Environment on Productive Efficiency and Capacity Utilization among SMEs in Liberia

Aloyce R. Kaliba (), Ashagre A. Yigletu, Wede E. Brownell, Edna G. Johnny () and Tuwehi C. Ziadee
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Aloyce R. Kaliba: College of Business, Southern University and A&M College, USA
Ashagre A. Yigletu: College of Business, Southern University and A&M College, USA
Wede E. Brownell: College of Business and Public Administration, University of Liberia
Edna G. Johnny: College of Business and Public Administration, University of Liberia
Tuwehi C. Ziadee: College of Business and Public Administration, University of Liberia

Review of Economics & Finance, 2012, vol. 2, 97-110

Abstract: An accommodating macro business environment is one that encourages firms to operate efficiently. Such conditions strengthen incentives for firms to be innovative and to increase productive efficiency. Unconducive macro business environment acts as a negative input to the production process. We use the 2008/09 Liberia¡¯s Small Business Enterprise Survey data to estimate firm level score of unconducive macro business environment using a two parameter Rasch Model. The estimated scores were incorporated in an output-semi-oriented radial Data Envelopment Analysis (DEA) model as undesirable inputs. The DEA model was used to estimate technical efficiency and capacity utilization of each enterprise. Estimated technical efficiency and revenue gap were regressed on all inputs using a Tobit model. The results indicate that increase in unconducive macro business environment decreased capacity utilization. To promote the role of small and medium enterprise in sustainable economic development, Liberia needs to improve enterprise¡¯s access to financial services, increase supply of electricity, and combat corruption by public officials.

Keywords: Data envelopment analysis; Liberia; Macro business environment; Rasch; Small and medium enterprise (SME) (search for similar items in EconPapers)
JEL-codes: D61 M21 O14 (search for similar items in EconPapers)
Date: 2012
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