There has been still a debate about the efficacy of privatization for economic transformation of countries. Nonetheless, many developing countries including Ethiopia have privatized public owned enterprises as a manifestation of their commitment to implement the reform packages induced by multilateral institutions through the Structural Adjustment Program. The proponents for pro-privatization strongly argue that private enterprises operate more efficiently than those that are owned by the state. The main objective of this paper is, therefore, to assess the extent to which privatized industries operate more efficiently as compared to those that remain under the public domain and other private industries. A Cobb-Douglass stochastic frontier production function is estimated for the group and separately for privatized industries. The econometric result revealed that the average technical efficiency for the whole sample was about 73.4% during the period 1998/99- 2001/02. Privatized industries were found relatively inefficient with a score of 69%, while public and other private industries reported 75% and 71%, respectively. It was also found that efficiency of privatized enterprises continuously declined during the same period. It is an indication, at least in the Ethiopian context, that privatization may not necessarily ensure efficiency gain. Thus, government should revitalize its hasty move towards transferring public enterprises to private hands.


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