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Technological Intensity of Government Demand and Innovation

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  • Viktor Slavtchev
  • Simon Wiederhold

    ()

Abstract

Governments purchase everything from airplanes to zucchini. This paper investigates whether the technological intensity of government demand affects corporate R&Dactivities. In a quality-ladder model of endogenous growth, we show that an increase in the share of government purchases in high-tech industries increases the rewards for innovation, and stimulates private-sector R&D at the aggregate level. We test this prediction using administrative data on federal procurement performed in US states. Both panel fixed effects and instrumental variable estimations provide results in line with the model. Our findings bring public procurement within the realm of the innovation policy debate.

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Bibliographic Info

Paper provided by Ifo Institute for Economic Research at the University of Munich in its series Ifo Working Paper Series with number Ifo Working Paper No. 135.

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Date of creation: 2012
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Handle: RePEc:ces:ifowps:_135

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Keywords: Government demand; technological change; endogenous growth; innovation policy;

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  1. Daron Acemoglu & Joshua Linn, 2004. "Market Size in Innovation: Theory and Evidence from the Pharmaceutical Industry," Levine's Working Paper Archive 228400000000000002, David K. Levine.
  2. Aschhoff, Birgit & Sofka, Wolfgang, 2008. "Innovation on Demand: Can Public Procurement Drive Market Success of Innovations," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 08-052, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  3. Christopher J. Nekarda & Valerie A. Ramey, 2010. "Industry evidence on the effects of government spending," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2010-28, Board of Governors of the Federal Reserve System (U.S.).
  4. Daniel J. Wilson, 2009. "Beggar Thy Neighbor? The In-State, Out-of-State, and Aggregate Effects of R&D Tax Credits," The Review of Economics and Statistics, MIT Press, vol. 91(2), pages 431-436, May.
  5. Grossman, Philip J, 1994. " A Political Theory of Intergovernmental Grants," Public Choice, Springer, Springer, vol. 78(3-4), pages 295-303, March.
  6. Valentino Larcinese & Leonzio Rizzo & Cecilia Testa, 2005. "Allocating the US federal budget to the states: the impact of the President," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 3611, London School of Economics and Political Science, LSE Library.
  7. Alvarez, R Michael & Saving, Jason L, 1997. " Congressional Committees and the Political Economy of Federal Outlays," Public Choice, Springer, Springer, vol. 92(1-2), pages 55-73, July.
  8. Guido Cozzi & Giammario Impullitti, 2010. "Government Spending Composition, Technical Change, and Wage Inequality," Journal of the European Economic Association, MIT Press, MIT Press, vol. 8(6), pages 1325-1358, December.
  9. Antonio Minniti & Carmelo Parello & Paul Segerstrom, 2013. "A Schumpeterian growth model with random quality improvements," Economic Theory, Springer, Springer, vol. 52(2), pages 755-791, March.
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