Exports, foreign ownership, and firm-level efficiency in Ethiopia and Kenya: an application of the stochastic frontier model

Adugna Lemi and Ian Wright

Empirical Economics, 2020, vol. 58, issue 2, No 12, 669-698

Abstract: 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; Exports; Foreign ownership; Ethiopia; Kenya (search for similar items in EconPapers)
JEL-codes: D24 F14 F21 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://link.springer.com/10.1007/s00181-018-1521-9 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:empeco:v:58:y:2020:i:2:d:10.1007_s00181-018-1521-9

Ordering information: This journal article can be ordered from
http://www.springer. ... rics/journal/181/PS2

DOI: 10.1007/s00181-018-1521-9

Access Statistics for this article

Empirical Economics is currently edited by Robert M. Kunst, Arthur H.O. van Soest, Bertrand Candelon, Subal C. Kumbhakar and Joakim Westerlund

More articles in Empirical Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().