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Technical Efficiency Analysis of the Ethiopian Brewery Industries

Nebyou Solomon
This study aims at determining the level of technical efficiency of the Ethiopian brewery 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 usefulness of the frontier approach to the measuring efficiency of industries is twofold. Firstly, it provides managers of the firms with answers to the questions regarding cost
more » ... ng cost minimization, organization and distribution systems. Secondly, frontier methodology offers guidance to regulators and policy makers as for solving and mitigating problems in particular industry and economy in general. The study considered five brewery industries over the period of 2006-2010 using firm level panel data. The empirical result indicates that the Translog functional form with maximum likelihood estimation better explains the production behavior of the brewery industries .The study estimates the average technical efficiency of the brewery industries is 80%.Therefore, the results indicate that there is a great potential exists for brewery industries to further increase the value added by 20% using the available input, technology and efficiency improvement, thereby reducing the cost of production. It"s interesting to note that out of the five technical inefficiency factors included in the translog model there were only two factors (export and investment intensity) which had a significant effect on technical inefficiency. The study further identifies that the mean efficiency of brewery industries vary among the industries and year-wise mean seems to be unstable during the study period. Therefore it invites further reform, competition and continued efforts to update technologies and equipment are required in pursuit of efficiency in the brewery industries. In order to effectively utilize the potential of the industries, efforts have to be made in improving investment intensity, export intensity, infrastructural and institutiona [...]
doi:10.20372/nadre/8751 fatcat:h7utgzwdszct3aw75b3n4kzjrm