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

Abstract


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.


Keywords


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

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