The study measures the level of technical efficiency and its determinants in Ethiopian garment factories. The study employs both Data Envelopment Analysis (DEA) and Stochastic Frontier Analysis (SFA) to compute the technical efficiency of Ethiopian garment factories and Tobit model to examine the determinant of technical inefficiency of the garment factories based on a data set of ninety four garment factories over the period of 2014-2015.
The study used Akaike Information Criteria (AIC) to opt for the best function between Cobb-Douglas and Translog functions. The result reveals that Cobb-Douglas production functions better explains the production behavior of garment factories. The DEA estimation shows that the mean technical efficiency of garment factories was around to be 0.43 while such figure in SFA goes as high as 0.89 and the research indicated that export do not promote technical efficiency Ethiopian garment factories.
The research indicated that DEA is more appropriate for small garment factors while SFA is more suitable to large and medium garment factories. The result from DEA model indicates that educational level of production manager, local fabric sourcing, collaboration with similar factories and membership status with Ethiopian textile and garment institute have positive contribution to efficiency. On the other hand wage rate of semi/unskilled labour, years of establishments, number of production line, educational level of the manager and size have a negative effect to efficiency. While the result from SFA indicates that wage rate of semi/unskilled, year of establishment, size and educational level of the manger have the positive contribution to technical efficiency.
On the other hand owners citizenship and collaboration work with similar factories are a negative contribution to SFA technical efficiency. The research recommends that output can be increased by improving the technical efficiency of Ethiopian garment factories. To do so, for large and medium scale firms attention should be given to improve the wage rate of semi/unskilled labour, educational level of the managers and minimize collaboration with similar firms while educational level of the production manager, local fabric sourcing, collaboration with similar factories, and membership status of textile and garment institute should be improved for small firms.
Table of Contents
1. Introduction
1.1. Background
1.2. Problem Statement
1.3. Objective
1.3.1. General Objectives
1.3.2. Specific Objectives
1.3.3. Research question
1.4. Research hypotheses
1.5. Significance of the study
1.6. Scope and limitation of the study
1.7. Organization of the Paper
2. LITERATURE REVIEW
2.1. Theoretical review
2.2. Empirical review
3. Methodology, Model Specification and Description of variables
3.1. Sources of Data
3.2. Sampling design
3.3. Description of Variables
3.3. Specification of Econometric Model
3.3.1. Parametric approach
3.3.2. Non Parametric approach
3.4. Identifying sources of technical inefficiency
3.5. Conceptual framework garment factories technical efficiency
4. Result and Discussion
4.1. Characteristics and production performance of garment factories in Ethiopia
4.2. The technical efficiency level of garment factories
4.3. Comparison of technical efficiency level by market orientation
4.3.1. Comparison of DEA and SFA result by owner’s citizenship
4.4. Econometric analysis results
4.4.1. Hypothesis testing and Model selection
4.5. Determinates of technical efficiencies
5. Conclusion and Recommendation
5.1. Conclusions
5.2. Recommendations
Research Objectives and Themes
This thesis aims to assess the technical efficiency of garment factories in Addis Ababa, Ethiopia, and to identify the specific factors that influence their operational efficiency. The study seeks to address the gap between current output levels and potential maximum output, specifically investigating if export orientation impacts efficiency and what role various operational variables play in factory performance.
- Measurement of technical efficiency using Data Envelopment Analysis (DEA) and Stochastic Frontier Analysis (SFA).
- Comparative analysis of efficiency between local market-oriented and export-oriented garment factories.
- Identification of determinants of technical inefficiency across different factory scales.
- Evaluation of the impact of production management, input sourcing, and collaboration on factory productivity.
- Assessment of the applicability of different econometric models (Cobb-Douglas vs. Translog) for the Ethiopian garment sector.
Excerpt from the Book
1.1. Background
The manufacturing sector in Ethiopia is at its infancy in comparison with the agriculture and service sectors. Following the formulation of the national industrial policy the industry in general and manufacturing sector in particular has been given appropriate national importance. The policy has identified a priority sector that gives prime attention to build the required stage for the industry to play its key role in the economy of the nation. Textile and garment sector is treated as a number one identified sectors by the government industrial development strategy. The government to promote industry created a variety of support program example, duty free incentive and tax exemption (investment proclamation 769/2012 and investment regulation 270/202). The sector contributes 13% (in 2013) and 15.4% (in 2014) to GDP of the economy.
Textile and garment industry are mainly targeted to be export oriented and become competitive at international market(GTP, 2010). The reasons for such view is because Ethiopia has a suitable agro climatic condition for the main raw material of the sector, abundant and relatively lower cost of labour, international textile and garment production and consumption shift to least developed countries, and the availability of international market privilege through free trade agreement(AGOA, EBA, COMESA). Some of the major export destinations of textile products are Germany, Turkey, USA, Italy, Belgium, China, and united Arab emirate. Next to food processing and beverage industry, and leather industry textile and garment industry is the third largest manufacturing industry in Ethiopia (Negede. et al 2011)
Summary of Chapters
Introduction: Provides the background of the Ethiopian textile and garment sector, defines the problem statement regarding its competitiveness, and outlines the research objectives and hypotheses.
LITERATURE REVIEW: Summarizes existing theoretical frameworks on productivity and technical efficiency, and discusses empirical studies conducted in various countries regarding industrial efficiency.
Methodology, Model Specification and Description of variables: Details the primary data collection methods, the use of DEA and SFA models, and defines the variables and conceptual framework used for analysis.
Result and Discussion: Presents descriptive statistics of the studied factories, compares technical efficiency scores across different segments, and provides the results of the econometric analysis.
Conclusion and Recommendation: Summarizes the findings of the study and offers policy recommendations to improve the technical efficiency of the Ethiopian garment industry.
Keywords
garment factories, stochastic frontier analysis, data envelopment analysis, technical efficiency, Ethiopia, manufacturing sector, Cobb-Douglas, productivity, export orientation, econometric modeling, industrial policy, labour efficiency, production management, input utilization, Addis Ababa
Frequently Asked Questions
What is the core focus of this research?
The research primarily evaluates the technical efficiency of garment factories located in Addis Ababa, Ethiopia, and seeks to identify the factors that contribute to technical inefficiency within the sector.
Which methodologies are employed to measure efficiency?
The study utilizes both Data Envelopment Analysis (DEA) and Stochastic Frontier Analysis (SFA) to provide a robust comparison of efficiency scores and to identify determinants of inefficiency.
What is the primary objective of this thesis?
The main objective is to assess the production performance of garment factories and determine whether specific operational variables, such as export orientation or management level, influence technical efficiency.
How is the production function modeled?
The study compares Cobb-Douglas and Translog production functions and uses Akaike Information Criteria (AIC) to select the best-fitting model for the data, ultimately preferring the Cobb-Douglas function.
What does the study cover in its main body?
The main body covers the characteristics of the garment factories, a comparison of efficiency levels based on market orientation and size, and an econometric analysis of the determinants of technical efficiency.
What are the characterizing keywords of this work?
Key terms include garment factories, stochastic frontier analysis, data envelopment analysis, technical efficiency, and industrial productivity in the Ethiopian context.
Why did the study reach different conclusions using DEA and SFA?
The models give different results because DEA creates its own envelope to compare firms, which tends to make large firms appear more inefficient compared to a concentrated cluster, whereas SFA splits the residual into inefficiency and error terms.
Does export orientation improve factory efficiency?
The research indicates that, contrary to expectations, exports do not significantly promote technical efficiency in Ethiopian garment factories, as they are not currently competing effectively in the international market.
How should the industry improve according to the author?
The author recommends that large and medium-scale firms focus on improving wage rates and manager education, while small-scale firms should focus on local fabric sourcing and collaboration with similar factories.
- Quote paper
- Tesfaye Fenta (Author), 2016, Efficiency of Ethiopian Garment Factories. Evidence from Addis Ababa, Munich, GRIN Verlag, https://www.grin.com/document/354760
