Foreign Capital and Firm Level Efficiency in Ghana: A Metafrontier Production Function Approach

Abstract

The role of foreign human and physical capital in the productive efficiency of the manufacturing firms in Ghana is examined in this thesis. We compare efficiency scores of two groups of firms- firms with foreign presence and local firms- that have heterogeneous technology. A Stochastic Metafrontier production function, which accommodates differences in technology, is estimated. The estimated technical efficiencies indicate that manufacturing firms in Ghana are generally less efficient. Although firms with foreign presence had higher mean value added figures relative to the local firms, the local firms were found to be more efficient and also closer to the potential output defined by the metafrontier function compared to the firms with foreign presence. We also find technical efficiency to be influenced by firm size, food producing firms, profits and firms located in the capital city (Accra). Moreover, our results show that physical capital is more productive in the local firms, which implies that (foreign) physical capital to local manufacturing firms in Ghana is more important than foreign human capital.