This website uses cookies.

By clicking the "Accept" button or continuing to browse our site, you agree to first-party and session-only cookies being stored on your device to enhance site navigation and analyze site performance and traffic. For more information on our use of cookies, please see our Privacy Policy.

Advertising, Innovation, and Economic Growth

Download Full Text PDF

Abstract

This paper analyzes the implications of advertising for firm dynamics and economic growth through its interaction with R&D. We develop a model of endogenous growth with firm heterogeneity that incorporates advertising decisions and calibrate it to match several empirical regularities across firm size. Our model provides micro-foundations for the empirically observed negative relationship between both firm R&D intensity and growth and firm size. In the calibrated model, about half of the deviation from proportional firm growth is attributed to our novel advertising channel. In addition, R&D and advertising are substitutes, a prediction for which we find evidence in the data.

Citation

Cavenaile, Laurent, and Pau Roldan-Blanco. 2021. "Advertising, Innovation, and Economic Growth." American Economic Journal: Macroeconomics, 13 (3): 251-303. DOI: 10.1257/mac.20180461

Additional Materials

JEL Classification

  • D22 Firm Behavior: Empirical Analysis
  • E23 Macroeconomics: Production
  • H25 Business Taxes and Subsidies including sales and value-added (VAT)
  • L25 Firm Performance: Size, Diversification, and Scope
  • M37 Advertising
  • O32 Management of Technological Innovation and R&D
There are no comments for this article.
Login to Comment