The Relationship between Advertising and Consumption

Abstract

This paper investigates, the causal relationship between advertising and consumption with panel data at industry level for some European countries. At macroeconomic level consumption can raise only if saving will decrease. But the competition effect of advertising is better captured at industry level that allow for interaction between firms. We apply a panel Granger causality frame work to our unique data set of consumption and advertising spending on different sectors across 9 years for 5 European Union countries. We reach robust results showing that consumption Granger causes advertising, rather than the other way. Our findings also suggest that compared to economic structures of different countries and interactions of sectors, consumption is a more important driver to advertising.

Keywords: consumption, advertising, Granger causality, panel data, media

JEL Classification: M37, E21, L11, L2, L8