ESTIMATION OF EFFICIENCY AND THE IMPACT OF COVID-19 ON THE EFFECT OF ACCESS TO FINANCE ON EFFICIENCY OF SMALL AND MEDIUM ENTERPRISES (SMEs) IN THE WESTERN AREA OF SIERRA LEONE

Abstract

To estimate efficiency and the impact of COVID-19 on the effect of access to finance on the efficiency of small and medium enterprises (SMEs) in the Western Area of Sierra Leone, the study adopted the stochastic frontier estimation method of determining the efficiency of firms. A model of maximum performance (capacity) was estimated using 450 SMEs randomly selected from the population of registered SMEs in the Western Area of Sierra Leone from 2018 to 2020. The model of net business earnings was estimated using the Maximum Likelihood procedure and the firm efficiencies were consequently estimated. The mean inefficiencies are estimated by various categories, including SMEs' access to bank credit to determine firm characteristics that are associated with higher mean efficiencies. The empirical results reveal that the potential of firms is determined positively by capital productivity and labour productivity and negatively by the experience of firms, the latter results suggesting that more experience does not push their production outwards but inwards. However, other factors found significant in efficiency differences among firms include gender of the head of the SME, educational level, professional training of the firm heads, sector of operation and the area of operation of the SMEs. Moreover, firm mean efficiencies are not found to vary across the three periods 2018, 2019 and 2020, suggesting the COVID-19 pandemic did not affect firm efficiencies.JEL: F13, F15  Article visualizations: