Correlations between advertising and R&D expenditures: dealing with important intangibles

Abstract

Expenditures on research and experimental development (R&D) and advertising by companies are forms of capital investment in intangible commodities as opposed to capital investment in tangible commodities such as plant and equipment. The amounts spent on both advertising (adspend) and R&D are positively related to the profitability of commercial enterprises. Various studies have recorded the links between R&D and adspend at the levels of firms, sub-sectors and sectors of industry for particular countries. However, no analysis appear to have been published on the associations between these two kinds of investment either at national level or in international comparisons. The findings presented here indicate that the most-developed countries spend between two and six times more on R&D per capita than on advertising. In less R&D-intensive economies, however, adspend may equal or exceed R&D expenditure per capita. In four countries examined, that have the lowest investment in R&D as a percentage of GDP, namely South Africa, Greece, Portugal and Poland, adspend actually exceeds gross expenditure on R&D. The author focuses on the link between R&D and adspend in South Africa between 1989 and 2004, for which a highly significant correlation was found. The benefits of businesses to continue investing in both advertising and R&D, even under adverse economic conditions, are also discussed.