Technical Efficiency of Small-and Medium-Scale Enterprises: Evidence from a Survey of Enterprises in Tanzania

The significance of small- and medium-scale enterprises (SMEs) is acknowledged worldwide. SMEs form the vanguard of the modern enterprise sector and present the propelling force of economic modernization and growth in developing economies. But it is imperative to examine their efficiency levels in order to formulate appropriate policies for the development of SMEs. In this study, the level of technical efficiency of SMEs in Tanzania has been examined using a Cobb-Douglas stochastic frontier production function. The findings indicate that high levels of technical inefficiency, which reduce their potential output levels significantly, characterize the Tanzanian SMEs. Assisting these firms to improve their technical efficiency through adequate supply of inputs, markets, and credit facilities, and undertaking extensive infrastructural development and training could be important measures.