Income distribution in models for developing countries : Kenya and Tanzania

Abstract

In this study a Cobb-Douglas profit function 1S developed and used to measure relative economics efficiency in manufacturing in Kenya. A substantive finding is that industries dominated by large firms are relatively more economic efficient than industries where small firms are the norm. This leads to the conclusion that large firms are relatively more economic efficient than their small-scale counterparts. The relative economic efficiency of large firms is not due to greater price-efficiency but to greater technical efficiency. Both large- and small-scale firms succeed to the same degree in maximizing profits. None of the two groups of firms is absolutely price-efficient and this leads to a major policy implication that output may be increased by a reallocation of resources from less to more productive industries.