Technical efficiency analysis of African economic growth: Panel stochastic frontier model approach

Abstract

Increased economic growth does not necessarily guarantee improvements in technical efficiency unless it is linked to efficient resource utilization. Accordingly, this study examined the technical efficiency of African economic growth and its determinants, utilizing the World Bank dataset for 47 African countries from 2005 to 2022. We employed the Cobb-Douglas functional form and a time-varying stochastic panel frontier model. We applied generalized true fixed effects model for estimation. The findings of the generalized true fixed effects model indicated that sampled African countries had a mean of overall, transient and persistent technical efficiency score of 90.4 %, 91.15 %, and 99.18 % respectively. The model estimation result also revealed that final consumption expenditure, domestic credit, and trade openness affects transient inefficiency negatively and significantly, whereas year has positive effect on transient inefficiency. Institutional quality and access to electricity positively and significantly affects persistent inefficiency. In conclusion, the model results indicate that technical efficiency differs across countries, highlighting opportunities for improvement without a substantial increase in production inputs. Thus, countries should prioritize the efficient use of resources to enhance their technical efficiency.