Analysis of Technical and Cost Efficiency of Co-Operative Financial Institutions in Ghana: An Application of Stochastic Frontier Approach

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2015-02-10
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The aim of this study is to examine the technical and cost efficiency of cooperative financial institutions in Ghana using a Cobb-Douglas Stochastic frontier model. An unbalanced panel data from 2009 to 2012 for sixty six financial cooperatives was used in the study. To capture the dual roles of financial cooperatives production and intermediation approaches are used in the selection of inputs and outputs. The distribution of technical efficiency scores show an average of 53.40% and 57.96% across the sampled units for production and intermediation approaches respectively. On the other hand, the distribution of cost efficiency scores show an average of 92.44% and 70.67% across the sampled units for production and intermediation approaches respectively. The study reveals increasing returns is experienced in cost efficiency whiles approximately constant return is enjoyed in technical efficiency. The main conclusion is that the CFIs reduce cost to the detriment of technical efficiency. Management should continue to explore opportunities of economies of scale in production and by adopting efficient technology that improves productivity of staff . The primary societies focus more on reducing poverty of members rather than investments that yield low returns. At the firm level, management must also heighten the scope of social commitment to both staff and clients whilst improving on marketing strategies.
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A thesis submitted to the Department of Economics,Kwame Nkrumah University of Science and Technology in partial fulfillment of the requirements for the degree of Master of Philosophy in Economics.
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