The Effects of Advertising (and) Investment on Aggregate Profits

Christos Pitelis

Scottish Journal of Political Economy, 1991, vol. 38, issue 1, 32-40

Abstract: The Relationship between advertising and industry profitability is one of the best explored in the Industrial Organization literature. Yet, we are aware of no single study that attempted to test the potential existence of such a relationship at the macroeconomic level. Given the central importance of profits in any market economy, the above asymmetric appears paradoxic and unsatisfactory. Our aim in this paper is to fill this gap in the literature. We test the hitherto unexplored relationship between advertising investment and aggregate profits using U.K. time series data. Our results lend support to the idea that advertising investment has a positive impact on aggregate profits. We also find support for another little explored idea; that investment is an important determinant of aggregate profits. Copyright 1991 by Scottish Economic Society.

Date: 1991
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