Firm Level Technical Efficiency between Foreign-Owned and Domestic-Owned Firms: Case Study of Pharmaceutical Manufacturing Industry in Ghana

Johnson Addai-Asante, Samuel Agyei Nimoh, Daniel Kwadwo Obeng


This study aims at comparing the levels of technical efficiency of domestic-owned and foreign-owned pharmaceutical manufacturing firms in Ghana and analyse the responsiveness of their respective outputs to capital and labour as major inputs. A stochastic frontier analysis based on the Cobb-Douglas production functional form was applied to estimate the parameters of the data and the technical efficiency of production among firms. The findings show that technical efficiency levels among foreign-owned firms range between about 47% and 88.6% with the mean technical efficiency level of 65.7% whilst those of the domestic-owned firms range between 40.33% and 75.05% with the mean efficiency level of 56.64%. The student t-ratio was used to test the equality of the mean values of efficiency.  In addition, capital and skilled labour had greater positive impacts on output levels of capsules and tablets produced by the firms. It is recommended that domestic-owned firms enter into joint venture agreement with their counterpart foreign ones to promote technology transfer to their operations. This will ultimately enhance technical efficiency among domestic-owned firms and hence, make them operate closer to their potential frontiers (more technically efficient) so as to be more cost effective and competitive.


capital; competition; domestic-owned firms; foreign-owned firms; frontier; Ghana labour; pharmaceutical manufacturing firms; technical efficiency.

Full Text:



K. P. Kalirajan. ‘On measuring economic efficiency’, Journal of Applied Econometrics, vol. 5, pp. 75 – 85 1990.

G. Chow. ‘Capital formation and economic growth in China’ Quarterly Journal of Economics, vol. 108, no. 3, pp. 809-842, 1993.

A. Baah-Nuako. Studies on the Ghanaian economy: The industrial sector. Accra: Woeli Publishing Services. 1990.

C.K. Duodonou. The impact of interest rate policy reforms on private sector saving and investment in Ghana: The Journal of Management Studies, vol. 3 no. 12, pp. 49-72. 1995.

J. Harper and M. Gyansa. The variability of pharmaceutical manufacturing in Ghana to address priority endemic diseases in the West Africa sub-region. Accra: Ghana Publishing Corporation. 2007.

Ghana Investment Promotion Centre. Foreign direct investment records from 1990 to 2009. Accra: GIPC.

J. M. Farrell. The measurement of productive efficiency. Lourna of the Royal Statistical Society SeriesA120. no. 3, pp. 253-290. 1957.

J. D. Aigner, C. A. K. Lovell and P. Schmidt. ‘Formation and estimation of stochastic frontier production function models’, Journal of Econometrics. Vol. 6, pp. 21-37. 1977.

W. Meeusen and J. Van Den Broeck. Efficiency estimation from Cobb-Douglas production function with compressed error. International economic review, Vol. 18, no. 2, pp. 435 - 444. 1977.

S.C. Kumbhakar and C. A. K. Lovell. Stochastic frontier analysis. New York: Cambridge University Press. 2000.

G. E. Battese and J. T. Coelli. Frontrier productions, technical efficiency and panel data: with application to paddy farmers in India. Journal of Production Analysis, vol. 3, pp. 153 – 169. 1995.

C. E. Ferguson. The neoclassical theory of production and distribution. Cambridge: Cambridge University Press. 2008.

E. W. Chirwa. Sources of technical efficiency among smallholder maize farmers in Southern Malawi. The African economic research consortium, vol. 5, pp. 18 – 22. 2007.

R. Singh. A Survey of Distribution Lags. International Journal of Business Management, Economics and Information Technology, vol. 3, no. 1. pp. 7 – 17, Jan. 2011.

L. R. Christensen, D. W. Jorgenson and L. J. Lau. Transitional logarithmic production frontiers. Review of Economics and statistics, vol. 55, no. 2, pp. 18 – 22. 1973.

Ghana statistical service. Gross domestic products at market prices by economic activities. Accra: GSS. 2010.

I. Rahmah and S. Z. Abidin. Efficiency level of Malay-owned firms and the current determinants factors in the Malaysian service sector. International bulletin of business administration: Eurojournals Inc., vol. 4, no. 4, pp. 20 – 25. 2009.

T. Coelli. A guide to DEAP Version 2.1; A data envelopment analysis (computer) programme. CEPA working paper 93/08. Australia: University of New England. 1996.

N. F. Alorvor and M. Anatu. Foreign capital and firm level efficiency in Ghana. A metafrontier production function approach. Unpublished Mphil thesis. School of Economics and Commercial Law, Goteborg University, Goteborg. 2003.

M. E. Doms and J. B. Jensen. Comparing wages, skills and productivity between domestic-owned and foreign-owned manufacturing establishments in the United States. In E. R. Baldwin. and J. D. Richardson, (Eds.), Geography and ownership as bases for economic accounting: pp. 235 – 255. Chicago: University of Chicago Press. 1998.

S. Globerman, J. C. Ries and I. Vertinsky. The economic performance of foreign affiliates in Canada. Canadian Journal of Economics, vol. 27, pp. 143 – 156. 1994.

J. B. Aitken and A. E. Harrison. Do domestic firms benefit from direct foreign investment? Evidence from Venezuela. American Economic Review, vol. 89, pp. 605 – 618. 1999.

G. Jefferson, T. Rawski and Y. Zheng’. Growth efficiency and convergence in China’s state and collective Industry’, Economic Development and Cultural Change, vol. 40, pp. 239 – 266. 1992.

M. SÖderbom and F. Teel. Size and efficiency in African manufacturing firms: Evidence from firm-level pannel data. CSAE WPS/2002-07. Center for the Study of African Economies: Oxford: University of Oxford. 2003.

H. C. R. Haung. Estimation of technical inefficiency with heterogeneous technology. Journal of Productivity Analysis, vol. 21, pp. 277 – 296. 2004.

J. T. Coelli. ‘Recent developments in frontier modeling and efficiency measurement’, Australian Journal of Agricultural Economics, vol. 39, no. 3, pp. 219 – 245. 1995.

K. P. Kalirajan. An econometric analysis of yield variability in paddy production. Canadian Journal of Agricultural Economics. vol. 29, issue 3, pp. 283 – 294. 1981.


  • There are currently no refbacks.




About ASRJETS | Privacy PolicyTerms & Conditions | Contact Us | DisclaimerFAQs 

ASRJETS is published by (GSSRR).