Determinants of technical and allocative efficiency of micro-enterprises: Firm-level evidence from Nigeria

This paper examines the determinants of technical and allocative efficiency of micro-enterprises in the Nigerian economy, using cross-sectional data collected on 180 micro-enterprises selected from block-making, metal fabricating and sawmilling enterprises. The Nigerian government has put in efforts at promoting productivity and efficiency in both the public and private sector of the economy. As a developing country, Nigeria has immense potential for better economic growth, both in the short and long run. It then becomes important to know the current level of efficiency within the sector. Quantitative estimates obtained from the stochastic frontier production function indicated a wide variation in technical and allocative efficiencies within and across occupational groups and across operational scale. The wide variation in the level of efficiency is an indication that there is ample opportunity for these enterprises to raise their level of efficiency. While the level of education of enterprise owners was found to be highly significant in affecting the level of efficiency of the micro-enterprises, the age of enterprise owners was found to be negatively related to their level of efficiency. These variables are important factors that government policy should address so as to improve the current level of efficiency in the sector.