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

Author

Listed:
  • 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.

Suggested Citation

  • Benedetto Molinari & Francesco Turino, 2009. "Advertising, Labor Supply and the Aggregate Economy. A long run Analysis," Working Papers 09.16, Universidad Pablo de Olavide, Department of Economics.
  • Handle: RePEc:pab:wpaper:09.16
    as

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    File URL: http://www.upo.es/serv/bib/wps/econ0916.pdf
    File Function: First version, 2009
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    References listed on IDEAS

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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 21:45:00

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    Cited by:

    1. Benedetto Molinari & Francesco Turino, 2009. "Advertising and Business Cycle Fluctuations," Working Papers. Serie AD 2009-09, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    2. Turino Francesco, 2010. "Non-Price Competition, Real Rigidities and Inflation Dynamics," The B.E. Journal of Macroeconomics, De Gruyter, vol. 10(1), pages 1-61, July.
    3. Driver, Ciaran, 2015. "Advertising’s Elusive Economic Rationale: is there a case for limiting tax relief?," MPRA Paper 68790, University Library of Munich, Germany.

    More about this item

    Keywords

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

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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