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New evidence on the persistence of profit in Turkey with first and second generation panel unit root tests

Aslan, Alper
Kula, Ferit
Kaplan, Muhittin
As argued that Developing country (DC) markets are lacking in competition because there are entry and exit barriers, high levels of protection, small and segmented markets in these countries. However, empirical literature on the intensity of competition in DCs, although limited in number, shows that the persistency coefficients are smaller for DCs than for advanced countries (ACs) suggesting that the intensity of competition is higher in DCs than that for the latter. This paper will provide new empirical evidence on the subject for 114 of the largest manufacturing firms in Turkey over the period 1985-2005. Empirical methodology chosen involves the first and second generation panel data unit root analysis of corporate profitability since the first generation panel unit root tests (LLC and IPS tests) are inadequate in the presence of cross-sectional dependence and may lead to misleading conclusions. To check the robustness of our results, we also repeated the unit root tests utilized for smaller sub-samples: the pre-customs union and post-customs union years of 1985–1995 and 1996-2005, in addition to full span analysis. The empirical findings of this paper illustrate that our results are not sensitive to the sampling periods selected and Customs Union does not generate substantial welfare at least for a sample of 114 listed companies drawn among 500 largest firms in Turkey.