Methodological Extensions of First-order Adjustment Models : An Application to Korea Manufacturing

This paper empirically tests traditional industrial-organization models. The models extend standard models and integrate them with dynamics associated with the "persistence of profits" methodologies. The standard model has estimated the speed of structural adjustment and steady-state market structure. The model extends this model by replacing the traditional cross-section profit equation with a profit-adjustment equation for Korean industrial data. In addition, my studies measure the speed of adjustment of profits and explicitly model steady-state profits. The major finding is that the traditional, standard model is mis-specified and potentially biased, but it appears that other estimates are not very sensitive in regard to Korean manufacturing industries. The results show the profit adjustment of Korean industries is relatively quick.