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Firms' Efficiency, Exits and Government procurement contracts

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  • Evguenia Bessonova

    (Bank of Russia, Russian Federation)

Abstract

This study provides evidence that productivity growth trends in Russia are similar to those in other countries where technology leaders enjoy productivity growth with a gap increasing between them and other companies. The survival analysis suggests that the most efficient firms quit the market at a faster rate than firms in other efficiency groups in the Russian economy. Survival functions of the least efficient firm do not always differ significantly from those of other companies. Results based on public procurement data provide evidence that additional financing from government contracts helps both the most and the least efficient firms to survive and shelters them from competitive pressure. In the short run, the positive effect of winning government procurement contracts for leaders seems to be only observed in their home regions, providing indirect evidence that the public procurement system does not support all types of firms with growth potential but only those affiliated with local authorities. Intervention in the mechanism of market selection through the system of public procurement could have a strong negative effect on economic growth as it provides incentives for inefficient firms without growth potential to stay in the market longer.

Suggested Citation

  • Evguenia Bessonova, 2019. "Firms' Efficiency, Exits and Government procurement contracts," Bank of Russia Working Paper Series wps49, Bank of Russia.
    • Handle: RePEc:bkr:wpaper:wps49
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    References listed on IDEAS

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    Cited by:

    1. Bessonova, E. & Tsvetkova, A., 2020. "Productivity growth and inefficient firms' exit from the market," Journal of the New Economic Association, New Economic Association, vol. 48(4), pages 185-196.

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    More about this item

    Keywords

    TFP growth; efficiency; productivity gap; government procurement contracts; firms’ exits.;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods

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