Marketing and Economic Growth
By Leo Sveikauskas
Firms are increasingly investing in marketing activities; marketing assets are becoming an important component of firm capital. But how much do these investments contribute to economic growth?
Governments around the world are collecting data on marketing in different forms. The System of National Accounts (SNA) establishes guidelines that ensure that the different countries of the world collect and distribute compatible economic statistics. R&D, software, and entertainment originals, such as books, songs, and movies, are currently treated as intangibles, meaning that they are treated as investment and appear directly as a portion of Gross Domestic Product.
The SNA has decided that marketing assets should also be counted as an intangible investment, and be included in GDP, beginning with the 2025 version of the SNA. Leo Sveikauskas, Corby Garner, Peter B. Meyer, and Matt Russell of the Bureau of Labor Statistics, Rachel Soloveichik of the Bureau of Economic Analysis, and Jim Bessen of TPRI have written a paper that explains how to measure marketing assets for the United States and shows how these new investments change measures of U.S. output. The paper is also intended to be a prototype that helps other nations include marketing in their own measures of GDP. The paper is on “Marketing, Other Intangibles, and Output Growth in 61 United States Industries” and will be published shortly in the Review of Income and Wealth.
Our empirical results show that marketing contributes 0.18 percent a year to U.S. output growth, approximately the same as software (0.19) and R&D (0.15). This R&D effect includes only the direct return to firms investing in R&D, and not the considerably larger R&D spillovers that accrue to other firms in the economy.
Marketing expenditures include purchased advertising as well as other forms of purchased marketing services, such as web design and hosting and purchases of marketing consulting and market research. In addition to such purchases of marketing services, the data include so called own-account marketing services, the personnel, such as marketing managers and marketing analysts, and supporting resources that firms hire to carry out their internal marketing efforts.
Data on advertising and other purchased marketing services are obtained from the U.S. input-output table, and data on firms’ internal marketing resources rest on information on occupational employment and wages in each industry.
The greatest uncertainty in these data is what percentage of expenditures in these areas has an impact of more than one year and therefore qualifies to be treated as investment in the national accounts. In contrast, alternative measures of the depreciation of the stock of marketing assets have little effect on the results.
Another uncertainty occurs because the increased presence of digital advertising has increased rapidly in recent years. Digital advertising is targeted more effectively, which means that such expenditures are more productive. On the other hand, much digital advertising is oriented towards immediate sales, so less advertising meets the one-year effectiveness standard that is necessary to be treated as investment.
Finally, evidence from the 61 individual industries shows that purchased and own-account marketing appear in the same industries in which software and R&D are influential.