Advertising, in-house R&D, and growth
BP2-STS
- Grossmann, Volker ORCID University of Fribourg
- 2008
Published in:
- Oxford Economic Papers. - Oxford University Press. - 2008, vol. 60, no. 1, p. 168-191
English
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.
- Faculty
- Faculté des sciences économiques et sociales et du management
- Department
- Département d'économie politique
- Language
-
- English
- Classification
- Economics
- License
- Rights reserved
- Open access status
- green
- Identifiers
- Persistent URL
- https://folia.unifr.ch/unifr/documents/323677
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