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The impact of public procurement on financial barriers to general and green innovation

Author

Listed:
  • Dorothea Schäfer

    (German Institute for Economic Research DIW Berlin
    Jönköping University)

  • Andreas Stephan

    (Linnaeus University)

  • Sören Fuhrmeister

    (DIW Berlin)

Abstract

This study investigates whether public procurement mitigates or exacerbates innovative enterprises’ financial constraints. We distinguish between general and environmentally beneficial innovative enterprises. Theory suggests that the treatment effects of public procurement, particularly when mediated by the demand-pull effect, may lower a company’s funding constraints for innovation. We test this theory with extended probit models allowing for endogenous treatment and selection. The findings reveal a significantly positive treatment effect of public procurement on the probability of facing financial constraints in both areas: general and environmentally beneficial innovative activities. Thus, the principal implications of this study are (1) that being an innovating SME exacerbates financial constraints and (2) that strengthening SMEs’ participation in European public tenders would not contribute to lowering SMEs’ financial constraints. On the contrary, complementary grants or other financial incentives might be necessary to substantially increase the SMEs’ bidding rates in public tenders.

Suggested Citation

  • Dorothea Schäfer & Andreas Stephan & Sören Fuhrmeister, 2024. "The impact of public procurement on financial barriers to general and green innovation," Small Business Economics, Springer, vol. 62(3), pages 939-959, March.
    • Handle: RePEc:kap:sbusec:v:62:y:2024:i:3:d:10.1007_s11187-023-00790-2
    DOI: 10.1007/s11187-023-00790-2
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    More about this item

    Keywords

    Public procurement; Financial constraints; General innovation; Green financial constraints; Environmentally beneficial innovation; Small and medium-sized enterprises; Sustainable finance; Green fiscal policy;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement

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