Water Efficient Technology Use of Firms and Its Effect on Technical Efficiency: Empirical Evidences from Industrial Firms Funded By the Development Bank of Ethiopia
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Date
2019-06
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Addis Ababa University
Abstract
Industrialization plays an important role in economic development. Of which, the manufacturing and
agro processing sub sectors role in growth is immense. Cognizant to; the government of Ethiopia has
given an attention to the industry sector under the Growth and Transformation Plans to create a
foundation for the sector to take a leading role in the economy. Industrial firms are top priority for the
government in developing the export sector; and the Development Bank of Ethiopia is mandated to
provide finance. This study was conducted on 153 sample industrial firms which were funded by
Development Bank of Ethiopia. The study applied a parametric stochastic frontier approach (SFA) in
estimating the technical efficiency of industrial firms situated in Addis Ababa & its surrounding those
financed by DBE. In this study translog frontier model was specified to represent the frontier function.
The parameter estimates by industrial groups are obtained using Maximum-likelihood method.
Water is critical for industries hence it can be taken as the essential input. It is also realized that
industrial water use is increasing rapidly thereby requiring water management and further efforts
shall be made. The technical efficiency of firms most of the time was analyzed using labor, capital and
intermediate materials only; without giving due attention to the water input used in production. This
implies there is a gap in studies conducted on technical efficiency analysis in taking in to account the
water input as a factor of production. Water input was so well thought-out in this study. The study
result reveals that the estimated coefficients for the water inputs are positive across all industrial
firms, but its significant level differ with different industrial groups. For example in industries such as
food and beverages, tanning & leather industries, paper & printings, and rubber & plastics industries;
the estimated coefficient for the water input is positive and significant at 1 percent. Whereas in
industries; like chemicals and furniture’s; the coefficients for the water input is positive and
significant at 5 percent. The study result reveals variations in efficiency exist among firms within the
industrial group, indicating that there is room for improving efficiency levels if firms use the water
input in a more efficient manner. Common to some industrial firms would be inability to operate at
their optimum production capacity. The study result also reveals the aggregate mean technical
efficiency of operational industrial firms funded by DBE was 43.8 percent during the study period. The
study findings provide evidence that water efficient technology usage in combination with other
variables reinforce each others have significant effects on technical efficiency. The findings of this
study have also recommendations in that; it primarily support for decision making by firm owners,
funding institutions and the policy makers. Hence, national and regional policies that promote water
efficient technology use are likely to enhance efficient utilization of the water resources; ensure
sustainable use of the water resources and increase productivity of industrial firms.
Keywords: Water input, stochastic frontier Approach, Industrial firms, Water efficient technology use, Technical efficiency
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Keywords
Water input, stochastic frontier Approach, Industrial firms, Water efficient technology use, Technical efficiency