Determinants of Advertising Expenditures: Aggregate and CrossMedia Evidence

Brendan ODonovan
The National Bank of New Zealand Ltd
David Rae
Organisation of Economic Cooperation and Development
Arthur Grimes
Institute of Policy Studies, Victoria University of Wellington

INTRODUCTION

Advertising expenditures account for approximately 1 per cent of GDP in the developed world (Waterson, 1992). They grew by an average 5 per cent p.a. in real terms over the 1980s. The advertising industry is therefore an important component of economic activity in its own right, as well as through its potential importance in affecting other economic aggregates (notably consumption). Given the industrys importance, it is surprising that little analytical work has been undertaken to ascertain the major determinants of advertising expenditures. We endeavour to fill this gap by undertaking an econometric analysis of the determinants of advertising expenditure within New Zealand. We show that New Zealands advertising trends are similar to those in other developed countries; hence this study may shed light on the determinants of advertising expenditures internationally.