Advertising Expenditures and the Macro-Economy: Some New Evidence

This article reinvestigates the relationship between advertising expenditures and various macro-variables using aggregate data from the United Kingdom. The analysis is based on the recently developed cointegration and causality approach. Unlike Galbraith's 1967 findings, the results fail to show evidence of any relationship between advertising activity and the level of national income, disposable income, and personal consumption expenditures. However, a strong uni-directional causality exists from advertising activity to the unemployment rate. This article raises concern about some fundamental issues in the advertising literature, and introduces a new and powerful estimation technique.