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Advertising, Labor Supply and the Aggregate Economy. A long run Analysis

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Author Info

  • Benedetto Molinari

    ()
    (Department of Economics, Universidad Pablo de Olavide)

  • Francesco Turino

    ()
    (Universitat d'Alacant and Università di Bologna)

Abstract

This paper studies the influence of persuasive advertising in a neoclassical growth model with monopolistically competitive firms. Our findings show that advertising can significantly affect the stationary equilibrium of a model economy in which the labor supply is endogenous. In this case, for empirically plausible calibrations, we find that the equilibrium level of hours worked, GDP, and consumption increase with the amount of resources invested in advertising. These findings are consistent with a new stylized fact provided in this paper: over the past decade, per-capita advertising expenditures have been positively correlated with per-capita output, consumption and hours worked across OECD countries. Because of the connection between advertising and labor supply, we show that our model improves on its neoclassical counterpart in explaining both within-country and cross-country variability of hours worked per capita.

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File URL: http://www.upo.es/serv/bib/wps/econ0916.pdf
File Function: First version, 2009
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Bibliographic Info

Paper provided by Universidad Pablo de Olavide, Department of Economics in its series Working Papers with number 09.16.

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Length: 41 pages
Date of creation: Dec 2009
Date of revision:
Handle: RePEc:pab:wpaper:09.16

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Keywords: Advertising; Labor Wedge; Labor supply; Economic Growth; Hours Worked.;

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References

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  1. Morten Ravn & Stephanie Schmitt-Grohé & Mart�n Uribe, 2006. "Deep Habits," Review of Economic Studies, Oxford University Press, vol. 73(1), pages 195-218.
  2. An, Sungbae & Schorfheide, Frank, 2005. "Bayesian Analysis of DSGE Models," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5207, C.E.P.R. Discussion Papers.
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  6. Xavier Gabaix & David Laibson, 2006. "Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 121(2), pages 505-540, May.
  7. Bagwell, Kyle, 2007. "The Economic Analysis of Advertising," Handbook of Industrial Organization, Elsevier, Elsevier.
  8. Volker Grossmann, 2008. "Advertising, in-house R&D, and growth," Oxford Economic Papers, Oxford University Press, vol. 60(1), pages 168-191, January.
  9. Rehme, Günther & Weisser, Sara-Frederike, 2007. "Advertising, Consumption and Economic Growth: An Empirical Investigation," Darmstadt Discussion Papers in Economics, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute of Economics (VWL) 35975, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute of Economics (VWL).
  10. Benedetto Molinari & Francesco Turino, 2009. "Advertising and Business Cycle Fluctuations," Working Papers. Serie AD, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) 2009-09, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  11. Ashley, R & Granger, C W J & Schmalensee, R, 1980. "Advertising and Aggregate Consumption: An Analysis of Causality," Econometrica, Econometric Society, Econometric Society, vol. 48(5), pages 1149-67, July.
  12. Robert Shimer, 2009. "Convergence in Macroeconomics: The Labor Wedge," American Economic Journal: Macroeconomics, American Economic Association, American Economic Association, vol. 1(1), pages 280-97, January.
  13. Olivier Blanchard, 2004. "The Economic Future of Europe," NBER Working Papers 10310, National Bureau of Economic Research, Inc.
  14. Stuart Fraser & David Paton, 2003. "Does advertising increase labour supply? Time series evidence from the UK," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 35(11), pages 1357-1368.
  15. Fisher, Walter H. & Hof, Franz X., 2000. "Relative Consumption and Endogenous Labour Supply in the Ramsey Model: Do Status-Conscious People Work Too Much?," Economics Series, Institute for Advanced Studies 85, Institute for Advanced Studies.
  16. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, American Economic Association, vol. 67(3), pages 297-308, June.
  17. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, Elsevier, vol. 21(2-3), pages 195-232.
  18. Natsuko Iwasaki & Yasushi Kudo & Carol Horton Tremblay & Victor Tremblay, 2008. "The Advertising-price Relationship: Theory and Evidence," International Journal of the Economics of Business, Taylor & Francis Journals, Taylor & Francis Journals, vol. 15(2), pages 149-167.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Advertising and GDP
    by Economic Logician in Economic Logic on 2010-01-25 15:45:00
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Cited by:
  1. Benedetto Molinari & Francesco Turino, 2009. "Advertising and Business Cycle Fluctuations," 2009 Meeting Papers, Society for Economic Dynamics 419, Society for Economic Dynamics.

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