Efficiency of Manufacturing Establishments in Eritrea

Abstract

This paper discusses productive efficiency of a sample of firms using World Bank data from a sample of 179 Eritrean manufacturing firms. The results of the estimation of the technical efficiency model shows Eritrean manufacturing firms ingeneral are inefficient. The study further investigated firms’ efficiency by nature of ownership, age of firm, experience of the entrepreneur and managers’ education. Both labour and capital are more productive under sole proprietorships or partnerships than incorporated firms. Labour is more productive for older firms and capital is more productive for younger firms. Results also show labour is more productive for firms with less experienced managers, while capital is more productive for high experienced managers. Also, labour is productive for both firms that are managed with less educated managers and high educated managers. In almost all cases return to scale appears to be less than one, suggesting the existence of high inefficiency. In general there was no significant difference in the existence of embodied technology among firms. The study suggests that firms need to examineand invest in technology and skills that may contribute to improved efficiency.