IDEAS home Printed from https://ideas.repec.org/a/oup/oxecpp/v60y2008i1p168-191.html
   My bibliography  Save this article

Advertising, in-house R&D, and growth

Author

Listed:
  • Volker Grossmann

Abstract

This paper develops a quality-ladder model of endogenous growth to study the interplay between in-house R&D and combative advertising expenditure, and its implications for economic growth, firm size, and welfare. The analysis shows that, somewhat surprisingly, higher incentives to engage in advertising, although combative, unambiguously foster innovation activity of firms. This, possibly, leads to faster growth and even higher welfare. These results rest on two features of the model which are well-supported by empirical evidence. First, if firms incur higher sunk costs for marketing, concentration and firm size rise. Second, firm size and R&D expenditure are positively related as larger firms are able to spread R&D costs over higher sales. The analysis also suggests that R&D subsidies are conducive to R&D and growth without inducing firms to raise advertising outlays. Copyright 2008 , Oxford University Press.

Suggested Citation

  • Volker Grossmann, 2008. "Advertising, in-house R&D, and growth," Oxford Economic Papers, Oxford University Press, vol. 60(1), pages 168-191, January.
    • Handle: RePEc:oup:oxecpp:v:60:y:2008:i:1:p:168-191
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1093/oep/gpm016
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Laurent Cavenaile & Pau Roldan-Blanco, 2021. "Advertising, Innovation, and Economic Growth," American Economic Journal: Macroeconomics, American Economic Association, vol. 13(3), pages 251-303, July.
    2. 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.
    3. Mathilde Aubouin & Lionel Ragot, 2024. "The Macroeconomics of Free Digital Services," Working Papers hal-04616676, HAL.
    4. Nocito, Samuel & Sartarelli, Marcello & Sobbrio, Francesco, 2023. "A beam of light: Media, tourism and economic development," Journal of Urban Economics, Elsevier, vol. 137(C).
    5. Volker Grossmann, 2008. "Entrepreneurial Innovation and Sustained Long-run Growth without Weak or Strong Scale Effects," CESifo Working Paper Series 2264, CESifo.
    6. 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.
    7. Philippe Askenazy & Thomas Breda & Delphine Irac, 2016. "Advertising and R&D: theory and evidence from France," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 25(1), pages 33-56, January.
    8. Benedetto Molinari & Francesco Turino, 2018. "Advertising and Aggregate Consumption: A Bayesian DSGE Assessment," Economic Journal, Royal Economic Society, vol. 128(613), pages 2106-2130, August.
    9. Wang, Wenya & Yang, Ei, 2023. "Multi-product firms and misallocation," Journal of Development Economics, Elsevier, vol. 163(C).
    10. Josef Falkinger, 2008. "Limited Attention as a Scarce Resource in Information‐Rich Economies," Economic Journal, Royal Economic Society, vol. 118(532), pages 1596-1620, October.
    11. Grossmann, Volker, 2009. "Entrepreneurial innovation and economic growth," Journal of Macroeconomics, Elsevier, vol. 31(4), pages 602-613, December.
    12. Michael Klein & Fuat Sener, 2023. "Product Innovation, Diffusion and Endogenous Growth," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 48, pages 178-201, April.
    13. Cheng, Louis T.W. & Chan, Ricky Y.K. & Leung, T.Y., 2018. "Impact of perk expenditures and marketing expenditures on corporate performance in China: The moderating role of political connections," Journal of Business Research, Elsevier, vol. 86(C), pages 83-95.
    14. A. Arrighetti & A. Ninni, 2009. "Firm size and growth opportunities: a survey," Economics Department Working Papers 2009-EP05, Department of Economics, Parma University (Italy).
    15. Michael Klein & Fuat Sener, 2023. "Product Innovation, Diffusion and Endogenous Growth," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 48, pages 178-201, April.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:oxecpp:v:60:y:2008:i:1:p:168-191. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Oxford University Press (email available below). General contact details of provider: https://academic.oup.com/oep .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.