Persistence of Profits in the Long Run: A Critical Extension of Some Recent Findings; Editorial Comment

Recently, discussions of the persistence-of-profits (POP) question have focused on 2 econometric firm models - the polynominal convergence model and the partial adjustment model. An international team of economists at the Science Center in Berlin, Germany, has introduced these models to the discussion and applied them to several countries. The models revealed that, although a convergence process occurred in any country, it did not result in an equalization of the initial deviations from the sample mean. It was shown that there are profitability differences that are persistent in the long run. These models are applied to a data bank of 283 German shareholder corporations. It is found that one of the findings of the POP team has to be reformulated. In a comment, Mueller expresses no quarrel with Schohl's criticism. He suggests that the best and simplest way to test whether there are persistent differences in profit rates across firms is to test whether one can reject the hypothesis that the long-run projected profits of all firms in the sample are equal.