We use panel data on advertising expenditures to check the influence of tobacco advertising bans on the advertising industry. We find no clear evidence of a negative effect of tobacco bans on total per capita advertising expenditures.Tobacco advertising ban

Olena Gnezdilova

Tom Coupe

English

Research Papers in Economics

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Kyiv School of Economics and Kyiv Economics Institute 
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DISCUSSION PAPER SERIES 
 
 
 
 
 
Do Tobacco Bans Harm the Advertising Industry? 
 
Tom Coupe (Kyiv School of Economics and             
Kyiv Economics Institute) 
Olena Gnezdilova (Kyiv Economics Institute)  
 
 
 
 
 
 
 
 
 
DP# 4                        January 2008  1
Do Tobacco Bans Harm the Advertising Industry?
Tom Coupé
a,b and Olena Gnezdilova
b
a) tcoupe@eerc.kiev.ua, Kyiv School of Economics, Degtyarivska, 51, 03113, 
Kyiv, Ukraine
b) Kyiv Economics Institute, 41 Nyzhniy Val, office 55, 04071 Kyiv, Ukraine
Abstract
We  use panel data  on advertising expenditures  to  check the influence of tobacco 
advertising bans on the advertising industry. We find no clear evidence of a negative 
effect of tobacco bans on total per capita advertising expenditures. 
Keywords: Tobacco advertising ban
JEL classification: H83
                                                
 Corresponding author. Phone: +380444251934; fax: +380444257386.
 Email address: ognezdilova@kei.org.ua (Olena Gnezdilova) 
Manuscript2
Introduction
Many  governments  have  tried  to  reduce  consumption  of  tobacco  by  limiting
possibilities for the tobacco industry to advertise its products (see Chaloupka and Saffer 
(2000)  for  an  overview).  Not  surprisingly,  attempts  to  introduce  or  strengthen  such 
restrictions have drawn a lot of criticism from the two industries most affected by these 
restrictions - the tobacco industry and the advertisement industry.
Arguments  used  by  opponents  of  such  bans  range  from  claims  that  bans  are  not 
successful  in  reducing  tobacco  consumption,  that  the  health  dangers  of  tobacco  are 
exaggerated to  claims  that  the  economy  will  suffer  because  of  such  bans.  The  latter 
concerns include employment loss (e.g. Connolly, 2000; European Parliament, 2002), 
bankruptcy of advertising enterprises (Innova Capital, 1999) and loss of revenue for local 
budgets (Novodey, 2006) and for the advertising firms (Bidenko, 2006).
Supporters  of  the  restrictions,  however,  argue  such  claims  are  exaggerated.  For 
example, the EU indicated that “applying the 1989 television advertising directive, and 
the  1998  general  advertising  directive,  as  well  as  the  various  national  rules  and 
regulations  on  tobacco  advertising  and  sponsorship  (as  in  Ireland,  Belgium,  France, 
Finland, Portugal etc.) has shown no evidence of net job losses in the economy” (Health 
and Consumer Protection Directorate – General, 2000). Bjartveit (2003) notes that in 
Norway,  which  had  banned  tobacco  advertising  in  1975,  the  8-years  average  annual 
growth of advertising in newspapers before the ban was 3.9% against 5.6% during the 8 
years after the ban.
Though there exists this kind of anecdotal evidence on the experience of specific 
countries,  as  far  as  we  are  aware,  there  is  no  study  that  analyzes  whether  the 
advertisement  industry  systematically  goes  through  a  crisis  after  the  introduction  or 
strengthening of regulation on tobacco advertising. In this paper, we shed light on this 
issue by analyzing the relationship between the level of regulation of tobacco advertising 
and advertisement expenditures.
It is important to note that we do not focus on the effect of bans on advertisement 
expenditures on tobacco products; instead we look at total advertisement expenditures in 
a country. We do this to capture possible spillovers - a tobacco company that faces a ban 
on advertising its tobacco products could increase its advertisement on other items in its 
product range, for example its clothing line
1. 
Empirical Analysis
We use data from the World Advertising Research Center (WARC)
2, United Nations 
Statistics Division (UNSD)
3, and the World Health Organization
4 for the period 1995-
2005 and 23 European countries
5.
                                                
1 As far as we are aware panel data on tobacco advertising expenditures do not exist.
2 The data on advertising expenditures are available at 
http://www.warc.com/LandingPages/Data/Adspend/AdspendByCountry.asp?Region=Europe3
We focus on 6 media: TV
6, radio, print, outdoors (billboards), cinema, and points of 
sales. We form dummies for advertising bans in those media making dummies equal to 
one in all years a ban exists, and equal to zero before the year of introduction of the ban.
Gross national income (GNI) per capita (included to control for differences in wealth) 
and advertising expenditures are expressed in real 1990 USD
7, in logarithms and per 
capita (to control for different size of the countries).
We run a regression of the logarithm of total per capita advertisement expenditures on 
a country fixed effect (we want to focus on how a country does before and after - the time 
dimension, rather than compare different countries - the cross-sectional dimension), the 
log of per capita GNI, a country specific time trend (given that we observe very different 
growth  rates  in  advertising  expenditures  in  different  countries),  and  different  ban 
indicators.
We use two estimation techniques to correct our results for heteroskedasticity and 
autocorrelation, which were detected with a Wooldridge test and modified Wald test.
We use fixed effects with robust standard errors (Wooldridge (2002) argues that this
makes the results valid in the presence of any heteroskedasticity or serial when T is small 
relative to N).
We also show the results of a feasible GLS estimation with panel-specific first-order 
autocorrelation and heteroskedastic error structure without cross-sectional correlation
8 -
for cases where N is close to T this method is preferable.
To  avoid  multicollinearity  between  ban  dummies
9,  we  introduce  one  more
specification: instead of using separate ban dummies we construct a variable reflecting a 
count of the number of media banned in a particular year. To check for possible non-
linearities, we add the square of the count variable. This implicitly assumes that the effect 
on advertising expenditures of all media bans is the same.
                                                                                                                                                 
3 The GNI  per capita, price deflator, population estimates, and exchange rates were taken from National 
Accounts Main Aggregates Database, http://unstats.un.org/unsd/snaama/selectionbasicFast.asp
4 The information about the tobacco regulations was taken from the Tobacco Control Database of the WHO 
Regional Office for Europe, http://data.euro.who.int/tobacco/
5 The countries are: Austria, Belgium, Bulgaria, Denmark, Estonia, Finland, France, Germany, Hungary, 
Italy, Ireland, Latvia, Poland, Netherlands, Romania, Russian Federation, Slovakia, Slovenia, Spain, 
Sweden, Switzerland, Turkey, United Kingdom.
6 Since in our sample, bans of cable TV and national TV always go together, we consider them jointly as a 
TV ban.
7 The original advertising expenditures for most countries are nominated in national currencies. We used 
UNSD exchange rates and UNSD implicit price deflator to standardize the values to 1990 USD.
8 Note that since we used xtgls command we also included country-specific dummies to estimate fixed 
effects. 
9 10 countries introduced 3 and more tobacco advertising bans at the same time. In 4 countries tobacco 
advertising was simultaneously banned in 5 media. 4
Tables 1 and 2 present the results
10. 
Table 1. Total Advertising Expenditures: influence of bans in separate media
FE (robust) FGLS
Log (Total advertising expenditures per capita)
GNI per capita 1.529** 1.371***
(0.032) (9.60e-10)
TV 0.164 0.0932**
(0.28) (0.024)
Radio -0.0119 0.0212
(0.90) (0.52)
National printed editions -0.00866 -0.00195
(0.88) (0.93)
Outdoors 0.0654 0.00603
(0.27) (0.81)
Points of sales 0.0944 0.0524**
(0.14) (0.039)
Cinemas -0.00987 0.0175
(0.87) (0.47)
Constant -10.21
(0.11)
Observations 253 253
Number of countries 23 23
R
2 0.942 .
Robust p values in parentheses
*** p<0.01, ** p<0.05, * p<0.1
The  fixed  effects  estimation  shows  no  significant  effect  of  tobacco  bans  on 
advertising expenditures. One possible explanation is a substitution towards non-banned 
media or non-banned products. O’Donovan, Rae and Grimes (2000) show, for example, 
that TV advertising is a substitute for advertising in printed media.
When  FGLS  is  used,  two  separate  bans  (for  TV  and  points  of  sales  advertising) 
significantly  influence  the  total  per  capita  advertising  level.  The  relatively  small  but 
positive effect indicates that some tobacco bans increase advertising spending.
This can be explained as follows: when a media is banned, the competition between 
media for tobacco advertising decreases leading to higher prices and thus to greater total 
advertising  spending.    Harper  (2001)  also  describes  how  in  Australia  after  tobacco 
advertising was banned in some media, the tobacco industry started advertising more 
aggressively in non-banned media which could boost total advertising spending.
                                                
10 Note that while we include country-specific trends, year and country dummies into the regressions here 
and after, we do not report their estimated coefficients to keep the presentation simple.5
Table 2. Total Advertising Expenditures: influence of the cumulative ban variable
FE (robust) FGLS
Log(Total 
advertising 
expenditures per capita)
Log(Total 
advertising 
expenditures per capita)
GNI per capita 
i) 1.439** 1.324***
(0.035) (1.31e-09)
Cumulative ban 0.0742 0.0527***
(0.24) (0.0032)
cumulative ban squared -0.00650 -0.00514*
(0.48) (0.074)
Constant -9.394
(0.12)
Observations 253 253
Number of countries 23 23
R
2 0.941 .
Robust p values in parentheses
*** p<0.01, ** p<0.05, * p<0.1
The cumulative ban (Table 2) is also significant if estimated through FGLS. The joint 
effect of bans is non-negative for all possible values (from 0 to 6). When tobacco ads are 
banned in only a few media the joint effect grows with every additional ban – again 
because of the narrower channels of influence and lower competition between media. 
However, after a certain number of media is banned, the law of diminishing returns starts 
reducing the marginal effect of each additional dollar spent on advertising in a given 
remaining media (Chaloupka and Saffer, 2000), and the effect of additional bans becomes 
negative.
All estimations show that real GNI per capita has a positive and significant effect on 
total  per  capita  advertising.  This  is  consistent  with  the  literature  which  shows  that 
advertising expenditures closely follow the business cycle (Picard, 2001, and for a brief 
review of this literature see O’Donovan, Rae and Grimes, 2000).
The attentive reader might argue that what we have shown so far are correlations 
rather than causal relations. Indeed, one could claim that in fact, advertising expenditures 
influence GNI. However, O’Donovan, Rae and Grimes (2000) investigate this causality 
question  using  data  from  New  Zealand  and  conclude  that  in  the  long-run,  aggregate 
consumption is a determinant of aggregate advertising spending, not visa-versa. 
More importantly, one could claim that the implementation of tobacco regulation is 
not ‘random’ – indeed, smart politicians that foresee the criticism that such regulations 
may harm the advertising industry may choose to introduce tobacco bans at times when 
the advertising industry is doing well. If so, we would find a positive relation between the 
presence of tobacco laws and the amount of advertising expenditures. Unfortunately, we 
do not have an instrumental variable that would allow us to clearly distinguish between 
causality and correlation. Still,  if the politicians of the countries in our  sample, have 6
systematically been able to choose the timing of the introduction of laws in such a way 
that  possible  harmful  effects  are  difficult  to  observe,  this  also  should  comfort  the 
advertising industry in countries where such laws still need to be developed. 
To check for substitution effects between media, we also analyzed the advertising 
expenditures in four specific kinds of media (TV, radio, printed editions, and outdoors 
advertising). Again, we used log-levels of per capita advertising expenditures (in 1990 
USD) now in different media and ran the same regressions as for total expenditures
11. In 
three out of four cases, the signs of the coefficient of a tobacco ban on its own media 
expenditures is negative – but only for outdoor expenditures this effect is significant in 
both specifications. A ban on tobacco advertising on TV, however, goes together with an 
increase in advertising expenditures on this medium.  As far as substitution effects are 
concerned, we found that bans on tobacco advertising in cinema have, not surprisingly, a 
negative effect on TV advertising expenditures but a positive effect on radio and printed 
advertising. It is  less  easy to  explain why TV  bans would have  a negative  effect on 
printed media.
Conclusions
In  this  paper,  we  analyze  whether  tobacco  bans  are  harmful  for  the  advertising 
industry. The data show little evidence to support claims that this indeed is the case – our 
overall results, if anything, show that advertising bans go together with higher advertising 
expenditures rather than lower advertising expenditures – this can be due to substitution 
from banned to non-banned media, from more intensive advertising campaigns by the 
tobacco industry to compensate for the loss of the banned media or because politicians 
have chosen to introduce such laws in times that the advertising industry is doing well.   
Specific  advertising  companies  that  focus  on  tobacco  advertising  obviously  may 
suffer from the introduction  of bans but  if the  tobacco advertising  ban  is  announced 
beforehand they easily could avoid losses by diversifying their offerings. 
From a policy perspective, it seems policy makers should not be too concerned about 
the advertising industry’s faith when they contemplate  strengthen tobacco  advertising 
regulation, as long as they choose the timing carefully, aiming for periods of economic 
growth.
References:
Bjartveit K. and World Health Organization, 2003 "Norway: Ban on Advertising and 
Promotion". Tobacco Control. WHO Tobacco Control Papers, Paper Nor2003. 
Bidenko A., 2006 Популізм і Тютюнопаління. Ukrainian Pravda [online]. Available 
from: http://www2.pravda.com.ua/news/2006/10/24/49533.htm
                                                
11 To shorten the presentation we omit the estimated figures. The detailed results of estimation are available 
upon request.7
Chaloupka  F.,  Saffer  H.,  2000.  Tobacco  Advertising:  Economic  Theory  and 
International Evidence. Journal of Health Economics, 19: 6, pp. 1117 – 1137
Connolly J., 2000. The Politics of Tobacco Advertising. Thorax, 57(Suppl II), ii64-ii68
European Parliament, 2002. Public Hearing on Tobacco Advertising and Sponsorship. 
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Harper T., 2001. Marketing Life after Advertising Ban. Tobacco Control, Volume 10, 
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Health  and  Consumer  Protection  Directorate  –  General,  2000.  Frequently  Asked 
Questions  on  Tobacco  Advertising  in  the  EU.  Brussels:  Health  and  Consumer 
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Picard R.G., 2001. Effects of Recessions on Advertising Expenditures: An Exploratory 
Study  of  Economic  Downturns  in  Nine  Developed  Nations.  Journal  of  Media 
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and World Health Organization,

European Parliament Available from: http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+PRESS+NR-20020416-1+0+DOC+XML+V0//EN#SECTION1 Harper T.,

We are Interested in Polish Media. Puls Biznesu,

Популізм і Тютюнопаління. Ukrainian Pravda [online]. Available from: http://www2.pravda.com.ua/news/2006/10/24/49533.htm 11 To shorten the presentation we omit the estimated figures. The detailed results of estimation are available upon request.7 Chaloupka

Do Tobacco Bans Harm the Advertising Industry?

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