Advertising, Innovation and Economic Growth

Pau Roldan-Blanco and Laurent Cavenaile

No 150, 2016 Meeting Papers from Society for Economic Dynamics

Abstract: We develop a model of firm dynamics through product innovation that explicitly incorporates advertising decisions by firms. We model advertising by constructing a framework that unifies a number of facts identified by the empirical marketing literature. The model is then used to explain several empirical regularities across firm sizes using U.S. data. Through a novel interaction between R&D and advertising, we are able to explain empirically observed deviations from Gibrat’s law, as well as the behavior of advertising expenditures across firms, the degree of substitution between R&D and advertising expenditures as firms grow large, and broadly the effects of advertising on both firm and economic growth. We find that smaller firms can be both more innovation- and advertising-intensive as in the data even when there exist increasing returns to scale in research.

Date: 2016
New Economics Papers: this item is included in nep-bec, nep-com, nep-cse, nep-dge, nep-gro, nep-ino, nep-mkt and nep-sbm
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Advertising, Innovation, and Economic Growth (2021)
Working Paper: Advertising, innovation and economic growth (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed016:150

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