Spillovers, Efficiency, and Productivity Growth in Advertising

We develop a tractable theoretical framework for analyzing the effect of advertising efficiency and spillovers on productivity growth in advertising. Maintaining the separability assumption between sales and production technology, the proposed methodology relies on sales cost function decomposition of advertising productivity and the duality between media distance and sales cost functions. Utilizing a flexible Translog distance function, the methodology is applied to the advertising activity of meat processing firms in Greece during 1983-2008. Changes in allocative efficiency, scale economies, and, to a lesser extent, technical change and advertising spillovers were the most important drivers of productivity growth during the period analyzed.