Supply response in Ethiopia: accounting for technical inefficiency

Abstract

Few empirical studies of supply response using the profit function have accounted for technical inefficiency. Using farm-level panel data from Ethiopia, this study examines the effect of incorporating technical inefficiency in estimating the supply response of peasant farmers. Two systems of output supply and input demand equations are estimated and compared: the conventional model in which technical efficiency is assumed and another in which technical inefficiency is explicitly incorporated. The model with technical inefficiency is preferred on grounds of theoretical consistency and improved estimates, although model comparison tests are not conclusive. Incorporation of inefficiency generally increases the magnitudes and the statistical significance of own price elasticities, substantially so in the case of fertilizer and fertilizer-intensive crops, and alters the priority attached to nonprice factors. An important result is that only the specification with inefficiency reveals a significant effect of access to extension services on output. Only this specification finds that output increases with household size, which one expects as the farms in the sample are largely subsistence and producing for own consumption. Furthermore, the results demonstrate that farmers' response to incentives is considerably restricted by inefficiency, suggesting that the traditional model would overstate response by excluding the efficiency variable. Copyright 2006 International Association of Agricultural Economists.

Aid, Agriculture and Poverty in Developing Countries

“…For an extensive report on pro‐poor policies in Ethiopia and the role of agriculture, aid and agency in poverty reduction in the 1990s, see World Bank (2005). Detailed analysis of performance of agriculture during this period is found in Abrar et al (2004) and Abrar and Morrissey (2006).…”

Sources of productivity growth in Ethiopian agriculture

“…(3) The effects of inefficiency as an explanatory variable on supply response using a profit function approach (Abrar and Morrissey 2006), and estimate and compare inefficiency from stochastic frontier analysis (SFA) with ordinary least square (OLS) during 1994 to 2004 (Bachewe, 2009). This paper covers a longer time (1994 -2009) than Bachewe (2009).…”

Technical efficiency in crop production across agro-ecological zones in Ethiopia: A meta-analysis of frontier studies

“…Particularly in Africa, some efficiency studies used to raise policy debates on the performance of the agricultural sector (Abro et al, 2014; Abrar and Morrissey, 2006; Alene and Hassan, 2006; Arega, 2010; Croppenstedt and Demeke, 1997; Haji, 2007). Results have been mixed and inconsistent across different modelling approaches and prevailing agro-ecological conditions.…”

“…Some studies have even reported conflicting results from the same data set. For instance, using Ethiopian Rural Household Survey data, different authors (see Abrar and Morrissey, 2006; Abro et al, 2014) estimated different levels of TE of Ethiopian farmers. There are also inconsistencies in the theoretical relationships between TE and its determinants.…”