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Persistence of profits in the EU: how competitive are EU member countries?

Author

Listed:
  • Johan E. Eklund

    (Swedish Entrepreneurship Forum
    Blekinge Institute of Technology
    Jönköping International Business School)

  • Emma Lappi

    (Swedish Entrepreneurship Forum
    Jönköping International Business School)

Abstract

Profits that persist above or below the norm for prolonged periods of time reveal a lack of competition and imply a systematic misallocation of resources. Competition, if unimpeded, should restore profits to normal levels within a relatively short time frame. The dynamics of profits can thus reveal a great deal about the competitiveness of an economy. This paper estimates the persistence of profits across the European Union (EU), which adds to our understanding of the competitiveness of 18 EU member states. By using a sample of approximately 4700 firms with 51,000 observations across the time period of 1995–2013, we find differences in the persistence of short-run profits, implying that there are differences in competitiveness across the EU. The Czech Republic and Greece are among the countries with the highest profit persistence, whereas the United Kingdom is among those with the lowest persistence of profits. Furthermore, we provide evidence that there are significant permanent rents present in the EU across countries as well as in the different broad sectors across the EU.

Suggested Citation

  • Johan E. Eklund & Emma Lappi, 2019. "Persistence of profits in the EU: how competitive are EU member countries?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 46(2), pages 327-351, May.
    • Handle: RePEc:kap:empiri:v:46:y:2019:i:2:d:10.1007_s10663-018-9399-5
    DOI: 10.1007/s10663-018-9399-5
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    References listed on IDEAS

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    More about this item

    Keywords

    Persistence of profits; Competition; Competitiveness; European Union;
    All these keywords.

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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