An Econometric Study of Ad Expenditure and Aggregate Consumption Spending in India

Advertising plays a significant role in the economic life of almost every market economy. In particular, the informative role that advertising plays in the modern marketing in motivating potential consumers to increase consumption at the expense of savings is hardly debatable. Thus, the purpose of this research paper is to make a modest yet not insignificant attempt to examine the impact of advertising on aggregate consumption for a developing country like India using time-series data for the period 1980 to 2012. The application of ADF unit root test confirms that the variables of the study are integrated of order one, and they are also cointegrated as confirmed through Johansen's cointegration test. The estimation of vector error correction model reveals that there exists bi-directional relationship between them. And, it is also confirmed through Granger causality test. The implication follows that in a developing market economy like India increasing advertising expenses can be regarded as a significant determinant of propensity to consume which has the potential to influence the aggregate ad expenditure of the country in the next period