Determinants and Extent of Technical Efficiency of Micro and Small-Scale Enterprises in Ghimbi Town, West Wollega Zone, Ethiopia: Data Envelopment Approach

Abstract

Over the years, the role of Micro and Small Enterprises (MSEs) in Ethiopian economic development has become apparent. In order to formulate appropriate policy for improvement of development of MSEs, it is important to examine sources and their level of technical efficiency. The objective of this study is to examine determinants and the extent of technical efficiency of MSEs in West Wollega Zone, Ghimbi town. A multistage sampling technique was employed to select sample MSEs at the study area. Among the total sample of 206, 152 MSEs (73.79 %) are Micro Enterprise and 54 MSEs (26.21 %) are Small Enterprise.  The Finding of Data Envelopment Approach (DEA) revealed the mean level of technical efficiency is 65% for micro-enterprises, 70% for small enterprises and 48.2% for pooled MSEs. These findings revealed that MSEs have huge potential output gains through improving their resource use inefficiency at their exiting inputs and technology. The finding of the Tobit model reveled age of manager, family size, business plan, size of enterprise, managerial training, vocational training and investment in ICT were found to significantly and positively affect efficiency of MSEs while age of enterprise, location of enterprise and access to credit were found to significantly and negatively affect  their efficiency. Enhancing investment in ICT, vocational training, training in preparation of business plan, share capital contribution, education and training of MSEs promoters in business development services are recommended to the concerned bodies to make MSEs operate at their full potential levels.

Keywords: DEA, MSEs, Technical Efficiency, Tobit Model, Wollega, Ethiopia

DOI: 10.7176/JESD/14-1-02

Publication date: January 31^st 2023