Firm Capacity Utilization in Ghana: Does Foreign Ownership Matter?

Abstract

One major policy change that has driven enterprise development in Ghana over the past two decades has been the opening of the sector to private and foreign participation. Using firm-level cross-sectional data for on Ghanaian enterprises for the year 2006 within an endogenous switching regression model, we analyze the question whether enterprises with high foreign ownership concentration exhibit different levels of capacity utilization from domestically owned firms. It was found that firms that choose to engage foreign partners have higher capacity utilization than a random firm from the sample would have and those who engage more domestic partners do no better or worse than a random firm from the sample. Other findings suggest that the level of demand, capital-labour ratio, wage productivity, and labour productivity are significant determinants of capacity utilisation. Increasing openness to foreign participation and allowing firms more flexibility to make factor choices by reducing strict labor regulations can positively affect capacity utilization.

Keywords: capacity utilization, firm ownership, endogenous switching regression