Affiliation:
1. University of Toronto Scarborough and Rotman School of Management, University of Toronto (email: )
2. Bank of Spain (email: )
Abstract
This paper analyzes the implications of advertising for firm dynamics and economic growth through its interaction with R&D. We develop a model of endogenous growth with firm heterogeneity that incorporates advertising decisions and calibrate it to match several empirical regularities across firm size. Our model provides microfoundations for the empirically observed negative relationship between both firm R&D intensity and growth and firm size. In the calibrated model, about half of the deviation from proportional firm growth is attributed to our novel advertising channel. In addition, R&D and advertising are substitutes, a prediction for which we find evidence in the data. (JEL D22, E23, H25, L25, M37, O32)
Publisher
American Economic Association
Subject
General Economics, Econometrics and Finance
Cited by
7 articles.
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