Profit Persistence in Brazil: A Panel Data Study

The paper investigates the persistence of profits for industrial firms in Brazil during the periods 1986-98 and 1994-1/1999-3. A simple theoretical framework justifies an autoregressive formulation for excess profits. A strong form of persistence can then be related to the presence of a unit root. Recently developed panel data unit tests enable the consideration of short time periods. The results thus obtained for two different measures of excess profitability mostly favour the presence of a unit root. Therefore, despite an apparently more competitive environment in the Brazilian economy one can still observe extremely persistent profits.