Combined Factor Productivity in Ethiopian Manufacturing Firms

Abstract

Combined Factor Productivity measures the rate of growth of output not accounted for by the rate of growth of combined factors of production viz-a-viz labour, capital, energy and material. So, CFP is one of the strong muscles of the economy. The aim of the paper is to estimate the CFP and its share of output determination in four selected Ethiopian manufacturing sub-sectors during 2006-2012. The standard primal (KL) and extended (KLEM) growth accounting CD production function by using the traditional Growth Accounting Method coupled with two alternative estimators-pooled OLS and fixed effects estimators of the panel data set. The findings indicated that CFP levels ranges from2.92 in leather to 8.01 in pharmaceuticals. The growth rate of CFP of almost all sub-sectors became negative in the post period compared to its pre-GTP version. Productivity and labour are found to be the main determinants of manufacturing output while capital is statistically insignificant to determine output particularly in KL model. The result suggests that in the industrialization process of the country, investment priority has to be given for those with higher productivity performances and having stronger inducing power. In addition, labour intensive manufacturing firms ought to be give due attention.

Keywords: CFP, KLEM, KL, Growth Accounting