Does Investment in Advertising Boost Economic Performance? Firm-Level Evidence of Ecuadorian Manufacturing

Keywords: Productivity, advertising, firm strategy, intangible capital.

Abstract

This paper examines how the firm´s advertising investments are related to different measures of economic and productivity performance during 2007 – 2017 in Ecuadorian manufacturing. Particularly, this study analyzes if firms that have advertising investments have better economic and productivity performance compare to non-advertising investment firms. In addition, this looks for evidence on how the different advertising strategies may affect productivity and gross revenue in both advertising and non-advertising firms. For this, this paper estimates the total factor productivity (TFP) at firm-level using a semi-parametric approach to reduce the simultaneous and endogeneity problems in the selection of inputs. The estimation results show that manufacturing firms which invest in advertising have an Advertising Premia on economic and productivity indicators, this premia is higher on economic outcomes. Also, the findings are that continuing advertising investment strategy firms have higher TFP, labor productivity, and gross revenue than exiting advertising investment firms, suggesting self-selection in the exit side of the market but not in the entry side of the market. Finally, the study finds that after firms entering to invest in advertising, firms experience an improvement on TFP, labor productivity, and gross revenue growth, which are in favor of learning by advertising hypothesis.

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Author Biography

Segundo Camino-Mogro, Universidad Ecotec and Superintendencia de Compañías, Valores y Seguros del Ecuador

Ph.D (c) in Economics at Universidad Complutense de Madrid. Invited Professor at School of Economics and Business at Universidad Ecotec, Associate Researcher at ESAI Business School, Universidad Espíritu Santo - Ecuador and the National Director of research and economic studies at Superintendencia de Compañías, Valores y Seguros of Ecuador.

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Published
2019-12-12
How to Cite
Camino-Mogro, S. (2019). Does Investment in Advertising Boost Economic Performance? Firm-Level Evidence of Ecuadorian Manufacturing. Journal of Technology Management & Innovation, 14(4), 100-118. Retrieved from https://www.jotmi.org/index.php/GT/article/view/3095
Section
Research Articles