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Advertising, Innovation, and Economic Growth

Laurent Cavenaile () and Pau Roldan-Blanco ()

American Economic Journal: Macroeconomics, 2021, vol. 13, issue 3, 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.

JEL-codes: D22 E23 H25 L25 M37 O32 (search for similar items in EconPapers)
Date: 2021
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Working Paper: Advertising, innovation and economic growth (2019) Downloads
Working Paper: Advertising, Innovation and Economic Growth (2016) Downloads
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DOI: 10.1257/mac.20180461

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