Estimating the Overall Revenue, Technical and Allocative Efficiencies of Ethiopian Commodity Exchange (ECX) Authority

This study estimates the mean Overall Revenue, Technical and Allocative Efficiencies of Ethiopian Commodity Exchange (ECX) market for the seventeen locations from 2009 to 2013 and also identifies the significant inefficiency effects (determinants) of an ECX transaction process. Moreover, this paper compares the technical efficiency of the two famous firms’ efficiency analyzing models: the Stochastic Frontier Analysis (SFA) and Data Envelopment Analysis (DEA). All input expenditure data and output exchanged through ECX trading channel over the range of the study period have used for estimating all the above efficiency scores. The whole inputs expenditures have categorized as Labor, Depreciation Expense (Capital Used), Warehouse and Office Rent and Other Material cost nominated as “others”. The major commodities considered as an output-indicators are Coffee, Pea Bean and Sesame constitutes more than 99 % of the agricultural commodity exchanged on the ECX trading floor, which are traded for export market that could be the foreign currency source for the country. The aggregated value of the daily exchanged quantities of each commodity multiplied by their corresponding daily prices has used as a proxy of output indicator for both SFA and DEA models efficiency score estimations. Therefore Output-oriented Revenue Function is the best fit equation for this data set and the Constant Returns to Scale (CRS_TE) estimated in the DEA model is considered as Overall Revenue Efficiency of the ECX. Using a DEA model, the mean Overall Revenue, Technical, and Allocative efficiency scores estimated for seventeen DMUs for the last five years are 0.60, 0.63 and 0.95 respectively. Alternatively, the mean Technical Efficiency score estimated using Stochastic Frontier Analysis (SFA) model is 0.81. The DEA model revealed that only two independent variables nominated as “ASSYIN” and “LLRC” are significantly affecting the Overall Revenue Efficiency of the ECX market.