American Economic Journal:
Macroeconomics
ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)
Advertising, Innovation, and Economic Growth
American Economic Journal: Macroeconomics
(pp. 251–303)
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.20180461Additional 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