Advertising expenditure and aggregate consumption in Britain and West Germany: An analysis of causality

Abstract

Abstract This paper surveys past work which attempts to investigate the effects of advertising on the macro‐economy, in particular on the allocation of income to consumption expenditure. It is argued that many prior studies aimed at testing this ‘Galbraithian’ hypothesis have suffered from an inability to detect the direction of any causal flows and may have only detected spurious relationships. Here, the relationship is analysed for West Germany and Great Britain, with the use of bivariate time series modelling techniques considered initially by Granger and Newbold. The advantages and disadvantages of using the concept of ‘Granger Causation’ are considered in relation to testing this area of interest. No support is found for the proposition that advertising has a positive causal effect on aggregate consumption in the two countries.

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