Total Factor Productivity Change in the Garment Industry in Nairobi: a Data envelopment Analysis

Abstract

The main aim of this study was to estimate total factor productivity (TFP) change of the firms in the Garment industry in Nairobi using panel data for the year 1989 and 2000. We employ data envelopment analysis (DEA) to compute Malmquist productivity indices, which are decomposed into two component measures namely efficiency change and technical change. Total productivity growth is found, but there is noticeable variation among individual firms. The observed total productivity growth of 32.2 percent in the industry can be accredited to the recent market reforms being undertaken in the sector. The decomposed index shows high correlation between TFP and the catching-up effect. white the frontier shift shows regress. The latter mainly contribute growth in TFP. The calculated efficiency measure show that there is on average an input -saving potential of 65.8 to 89.3 percent. The study shows that activities carried out in the industry should be registered regularly so as robust conclusion on the performance of the sector can be drawn in future. The banking sector and/or micro-finance sector should be encouraged to develop mechanisms to enable producers to export:. Appropriate manufacturing space for small-scale producers should be provided to allow them to be more productive and therefore,more competitive on both domestic and foreign markets. Electricity charges should be brought down to those prevailing in the competing countries. lastly, the government along side the large-scale industry and the Non-governmental organization (NGO) sector should assist small-scale producers improve the quality of their products by offering specialized training to workers in the garment industry. " If economic planning is to concern itself with particular sectors [industries], it is important to know how a given sector [industry] can be expected to increase its output by simply increasing its efficiency without absorbing further resources. "