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Advertising, Innovation and Economic Growth

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  • Pau Roldan

    (New York University)

  • Laurent Cavenaile

    (New York University)

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.

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  • Pau Roldan & Laurent Cavenaile, 2016. "Advertising, Innovation and Economic Growth," 2016 Meeting Papers 150, Society for Economic Dynamics.
  • Handle: RePEc:red:sed016:150
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    Cited by:

    1. Max Nathan & Anna Rosso, 2017. "Innovative events," Development Working Papers 429, Centro Studi Luca d'Agliano, University of Milano, revised 08 Apr 2019.
    2. Argente, David & Baslandze, Salomé & Hanley, Douglas & Moreira, Sara, 2020. "Patents to Products: Product Innovation and Firm Dynamics," CEPR Discussion Papers 14692, C.E.P.R. Discussion Papers.
    3. Pau Roldan & Sophia Gilbukh, 2017. "Firm Dynamics and Pricing under Customer Capital Accumulation," 2017 Meeting Papers 1235, Society for Economic Dynamics.
    4. Michael Klein & Fuat Sener, . "Product Innovation, Diffusion and Endogenous Growth," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics.
    5. Michael Klein & Fuat Sener, . "Product Innovation, Diffusion and Endogenous Growth," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics.

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    More about this item

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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