Determinant of Technical Efficiencies of Micro and Small Enterprises in Wolaita Zone, Ethiopia

Abstract

Efficiency is very important factor for productivity growth. In an economy where resources are scarce and opportunities to use new technologies are limited, studies indicate potential possibility to raise productivity by improving efficiency without necessarily developing new technologies or increasing the resource base. The objective of this study was to determine the technical efficiencies of MSEs in Wolaita Zone, Ethiopia. A multi-stage sampling technique was used to select 352 enterprises by employing Yamane formula. Data were analyzed by using Data envelopment technique. Findings show that the mean level of technical efficiency was 0.61 for both MSEs together, 0.59 for micro-enterprises and 0.67 for small enterprises. Results indicated that dependent variable which is defined as technical efficiency of MSEs was affected by explanatory variables: age of promoters, managerial training, vocational training, access to finance, family size, location of the enterprises, enterprises age, business plan, investment on ICT, Initial capital, enterprises size, social networking, were included in the model. From twelve possible factors, eight of the explanatory variables age of promoters, enterprises size, vocational training, and investment in ICT, initial capital, social networking, family size and business plan affected technical efficiency significantly. Based on the finding age of promoters, social networking, initial capital, vocational training and investment in ICT were significantly and positively determined technical efficiency while business plan and enterprises size significantly and negatively determined technical efficiencies. These results suggest that increased investment in ICT and vocational training could jointly contribute to an improvement in technical efficiency. Enhancing share capital contribution, enhancing micro-financing efficiency, infrastructural facilities and information dissemination, educating and training of MSEs promoters in business development services (BDS) were recommended to enhance technical efficiency in optimal input usage to obtain maximum output.

Keywords: Data Envelopment analysis, MSEs, Technical efficiency, Tobit Model, Wolaita Ethiopia.