Efficiency of micro enterprises in the Nigerian economy

Igbekele A. Ajibefun and Adebiye G. Daramola

Working Papers from African Economic Research Consortium

Abstract: This study investigates the efficiency of microenterprises in the Nigerian economy, using cross sectional data collected on 180 microenterprises selected from block-making, metalfabricating and sawmilling occupational groups. Quantitative estimates obtained from the stochastic frontier production function indicate a wide variation in technical and allocative efficiencies within and across occupational groups and across operational scales. The wide variation in the level of efficiency is an indication that there is ample opportunity for these enterprises to raise their level of efficiency. The level of education of enterprise owners was found to be highly significant in affecting the level of efficiency of the microenterprises. This implies that education is an important policy variable, and could be used by policy makers to improve both technical and allocative efficiency in the sampled enterprises. Hence, education policy that would encourage operators of microenterprises in the country to undergo literacy and training programmes would lead to substantial increase in efficiency of production and hence in the volume of output at the current level of technology. Finally, rising age of enterprise owners was found to lead to decline in the mean efficiency. Therefore, government policy should focus on ways to attract and encourage young entrepreneurs who are agile and able to put in more efforts at raising the level of efficiency.

Date: 2003-09-07
Note: African Economic Research Consortium
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