Methodological Extensions of First-Order Adjustment Models: An Application to U.S. Industries

Jo Sunghan

International Economic Journal, 2000, vol. 14, issue 2, 85-111

Abstract: This paper empirically tests two industrial-organization models with a sample of 182 U.S. industries, from to 1963 to 1967. The models extend standard models and integrate them with dynamics associated with the " persistence of profits" methodologies. We extend it by replacing the traditional cross-section profit equation with a profit-adjustment equation for U.S. industrial data. Our study measures the speed of adjustment of profits and explicitly models steady-state profits, in addition to the speed of structural adjustment and steady-state market structure. We find that the structural-adjustment speed is slower than the profit-adjustment speed and that nonzero economic profits tend to be quite persistent

Date: 2000
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DOI: 10.1080/10168730000000020

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