An Efficiency Analysis of Firms in Sub-Saharan Africa

This thesis provides a comprehensive examination of firm-level performance for a large sample of firms in Sub-Saharan Africa (SSA). To undertake the analysis of firm-level performance, a number of different empirical studies are presented. In general, our choice of method is stochastic frontier approach (SFA), although we also employ a novel approach to examine resource mis-allocation at the firm level. Our efficiency analysis is conducted by applying a one-step approach. The data we use is a unique firm-level data covering many countries within SSA. The firms that we focus on are drawn from the manufacturing sector. In our analysis we make use of two waves of the survey covering 2005 and 2010. First, we analyse the relationship technical efficiency (TE) and foreign direct investments (FDI). We cannot reject the hypothesis of a positive relationship between TE and FDI at the firm level. Second, we assess the TE of exporting firms relative to non-exporters by correcting for biases that can occur using a sample selection specification. We find that the type of firm ownership is a significant determinant in encouraging openness to trade. Third, we undertake a cost efficiency (CE) analysis of private versus public firms. We confirm that private ownership and trade openness promotes a higher efficiency level. Finally, we investigate firm-level differences in terms of resource mis-allocation controlling for size and sectors. We find high variation in the measures of mis-allocation depending on the assumed degree of substitution among inputs. To reveal this result, we employed a constant elasticity of substitution (CES) production function which extends earlier efforts in the literature that have been based on a Cobb-Douglas (C-D) specification. Overall, our results confirm that SSA firms could encourage greater efficiency by allocating more resources to private and foreign firms and promoting market competition through exporting, particularly in the most tradable sectors, such as agriculture. This would represent an important avenue to promote the growth of firms and build a more viable private sector to encourage the development of SSA countries.