Determinants of Productivity

Abstract

Due to lack of reliable data, combined factor productivity has not yet been computed in developing countries on non erroneous bases.  This would mislead to the identification of the determinants of CFP. The aim of this section is to identify some of the possible determinants of CFP in Ethiopian manufacturing firms. The dynamic panel data estimation, using a system of GMM, has been a selected approach. It has been hypothesized that, among others, insufficiency of finance (working capital) would significantly affect the productivity of firms. Results from the analysis show that all factor intensities, labour taking the lead and energy the tail, have negative and significant influence on combined factor productivity at 1% level of significance except energy at 5% in both KLEM and KL models. Shortage of foreign currency and working capital both as proxy of financial insufficiency, wielded significant effect on productivity in KLEM and KL models respectively at 10% level of significance. Export and training in their dummies have also shown positive and significant influence on combined factor productivity.This suggested that labour quantification results in loss of combined factor productivity gain unless accompanied by quality enhancement instruments such as training.

Keywords: CFP, Determinants, Factor intensity, partial productivity