Mediating Effect of Advertising Expenditure on Labour Productivity: A Case of Manufacturing Industries in Pakistan

This paper explores the possibility that the labour productivity enhancing effects often ascribed to capital intensity may partly act through some mediating variable. The paper uses a mediation model to estimate direct and indirect effects of capital intensity on labour productivity in Pakistan‘s manufacturing industries. The data involve 229 industries at five-digits level of aggregation. The data are taken from Census of Manufacturing Industries for the year 2005-06. Using capital intensity as an independent variable and advertising expenditure as a mediating variable, the paper estimates total, direct, and indirect effects on labour productivity. Approximately 18 percent of total effects on labour productivity are found to be mediated through advertising expenditure. The statistical significance of indirect effects is tested using standard normal tests as well as bootstrap method, and these effects are found to be significant.