IDEAS home Printed from https://ideas.repec.org/p/jrp/jrpwrp/2011-036.html
   My bibliography  Save this paper

The Impact of Government Procurement Composition on Private R&D Activities

Author

Listed:
  • Viktor Slavtchev

    (Friedrich Schiller University Jena, Chair of "Business Dynamics, Innovation and Economic Change" and GK-EIC "The Economics of Innovative Change", Jena)

  • Simon Wiederhold

    (ifo Institute for Economic Research)

Abstract

This paper addresses the question of whether government procurement can work as a de facto innovation policy tool. We develop an endogenous growth model with quality-improving innovation that incorporates industries with heterogeneous innovation sizes. Government demand in high-tech industries increases the market size in these industries and, with it, the incentives for private firms to invest in R&D. At the economy-wide level, the additional R&D induced in high-tech industries outweighs the R&D foregone in all remaining industries. The implications of the model are empirically tested using a unique data set that includes federal procurement in U.S. states. We find evidence that a shift in the composition of government purchases toward high-tech industries indeed stimulates privately funded company R&D.

Suggested Citation

  • Viktor Slavtchev & Simon Wiederhold, 2011. "The Impact of Government Procurement Composition on Private R&D Activities," Jena Economics Research Papers 2011-036, Friedrich-Schiller-University Jena.
    • Handle: RePEc:jrp:jrpwrp:2011-036
    as

    Download full text from publisher

    File URL: https://oweb.b67.uni-jena.de/Papers/jerp2011/wp_2011_036.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
    2. 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.
    3. Lichtenberg, Frank R, 1988. "The Private R&D Investment Response to Federal Design and Technical Competitions," American Economic Review, American Economic Association, vol. 78(3), pages 550-559, June.
    4. Nelson, Charles R & Startz, Richard, 1990. "Some Further Results on the Exact Small Sample Properties of the Instrumental Variable Estimator," Econometrica, Econometric Society, vol. 58(4), pages 967-976, July.
    5. Edler, Jakob & Georghiou, Luke, 2007. "Public procurement and innovation--Resurrecting the demand side," Research Policy, Elsevier, vol. 36(7), pages 949-963, September.
    6. Joaquim Oliveira Martins & Stefano Scarpetta & Dirk Pilat, 1996. "Mark-Up Ratios in Manufacturing Industries: Estimates for 14 OECD Countries," OECD Economics Department Working Papers 162, OECD Publishing.
    7. Arthur, W Brian, 1989. "Competing Technologies, Increasing Returns, and Lock-In by Historical Events," Economic Journal, Royal Economic Society, vol. 99(394), pages 116-131, March.
    8. Elis, Roy & Malhotra, Neil & Meredith, Marc, 2009. "Apportionment Cycles as Natural Experiments," Political Analysis, Cambridge University Press, vol. 17(4), pages 358-376.
    9. Dietmar Harhoff & Frederic M. Scherer & Katrin Vopel, 1997. "Exploring the Tail of Patented Invention Value Distributions," CIG Working Papers FS IV 97-27, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
    10. Ruttan, Vernon W., 2006. "Is War Necessary for Economic Growth?: Military Procurement and Technology Development," OUP Catalogue, Oxford University Press, number 9780195188042, Decembrie.
    11. Kenneth L. Sokoloff, 1988. "Inventive Activity in Early Industrial America: Evidence From Patent Records, 1790 - 1846," NBER Working Papers 2707, National Bureau of Economic Research, Inc.
    12. Aschhoff, Birgit & Sofka, Wolfgang, 2009. "Innovation on demand--Can public procurement drive market success of innovations?," Research Policy, Elsevier, vol. 38(8), pages 1235-1247, October.
    13. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-351, March.
    14. Stock, James H & Wright, Jonathan H & Yogo, Motohiro, 2002. "A Survey of Weak Instruments and Weak Identification in Generalized Method of Moments," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(4), pages 518-529, October.
    15. Daron Acemoglu & Joshua Linn, 2004. "Market Size in Innovation: Theory and Evidence from the Pharmaceutical Industry," The Quarterly Journal of Economics, Oxford University Press, vol. 119(3), pages 1049-1090.
    16. Alfred Kleinknecht & Kees Van Montfort & Erik Brouwer, 2002. "The Non-Trivial Choice between Innovation Indicators," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 11(2), pages 109-121.
    17. Gary Hoover & Paul Pecorino, 2005. "The Political Determinants of Federal Expenditure at the State Level," Public Choice, Springer, vol. 123(1), pages 95-113, April.
    18. Jinyong Hahn & Jerry Hausman & Guido Kuersteiner, 2004. "Estimation with weak instruments: Accuracy of higher-order bias and MSE approximations," Econometrics Journal, Royal Economic Society, vol. 7(1), pages 272-306, June.
    19. Carol Corrado & John Haltiwanger & Daniel Sichel, 2005. "Measuring Capital in the New Economy," NBER Books, National Bureau of Economic Research, Inc, number corr05-1, March.
    20. Carol A. Robbins & Felicia V. Candela & Mahnaz Fadim-Nader & Gabriel W. Medeiros, 2007. "Methodology for the Industry Estimates in the 2007 R&D Satellite Account," BEA Papers 0082, Bureau of Economic Analysis.
    21. Lichtenberg, Frank R, 1987. "The Effect of Government Funding on Private Industrial Research and Development: A Re-assessment," Journal of Industrial Economics, Wiley Blackwell, vol. 36(1), pages 97-104, September.
    22. A. Minniti & C.P. Parello & P.S. Segerstrom, 2008. "A Schumpeterian Growth Model with Heterogenous Firms," Working Papers 645, Dipartimento Scienze Economiche, Universita' di Bologna.
    23. Valentino Larcinese & Leonzio Rizzo & Cecilia Testa, 2005. "Allocating the US Federal Budget to the States: the Impact of the President," STICERD - Political Economy and Public Policy Paper Series 03, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    24. David, Paul A. & Hall, Bronwyn H. & Toole, Andrew A., 2000. "Is public R&D a complement or substitute for private R&D? A review of the econometric evidence," Research Policy, Elsevier, vol. 29(4-5), pages 497-529, April.
    25. Diewert, W. Erwin & Fox, Kevin J., 2008. "On the estimation of returns to scale, technical progress and monopolistic markups," Journal of Econometrics, Elsevier, vol. 145(1-2), pages 174-193, July.
    26. Drew Fudenberg & Jean Tirole, 1985. "Preemption and Rent Equalization in the Adoption of New Technology," Review of Economic Studies, Oxford University Press, vol. 52(3), pages 383-401.
    27. Cowan, Robin, 1990. "Nuclear Power Reactors: A Study in Technological Lock-in," The Journal of Economic History, Cambridge University Press, vol. 50(3), pages 541-567, September.
    28. Jonathan Temple & Ludger Wößmann, 2006. "Dualism and cross-country growth regressions," Journal of Economic Growth, Springer, vol. 11(3), pages 187-228, September.
    29. Sokoloff, Kenneth L., 1988. "Inventive Activity in Early Industrial America: Evidence From Patent Records, 1790–1846," The Journal of Economic History, Cambridge University Press, vol. 48(4), pages 813-850, December.
    30. Levitt, Steven D & Snyder, James M, Jr, 1997. "The Impact of Federal Spending on House Election Outcomes," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 30-53, February.
    31. Guido Cozzi & Giammario Impullitti, 2010. "Government Spending Composition, Technical Change, and Wage Inequality," Journal of the European Economic Association, MIT Press, vol. 8(6), pages 1325-1358, December.
    32. Petra Moser, 2005. "How Do Patent Laws Influence Innovation? Evidence from Nineteenth-Century World's Fairs," American Economic Review, American Economic Association, vol. 95(4), pages 1214-1236, September.
    33. Grossman, Philip J, 1994. "A Political Theory of Intergovernmental Grants," Public Choice, Springer, vol. 78(3-4), pages 295-303, March.
    34. Paul S. Martin, 2003. "Voting's Rewards: Voter Turnout, Attentive Publics, and Congressional Allocation of Federal Money," American Journal of Political Science, John Wiley & Sons, vol. 47(1), pages 110-127, January.
    35. Hansen, Christian B., 2007. "Asymptotic properties of a robust variance matrix estimator for panel data when T is large," Journal of Econometrics, Elsevier, vol. 141(2), pages 597-620, December.
    36. Alvarez, R Michael & Saving, Jason L, 1997. "Congressional Committees and the Political Economy of Federal Outlays," Public Choice, Springer, vol. 92(1-2), pages 55-73, July.
    37. Hall, Robert E, 1988. "The Relation between Price and Marginal Cost in U.S. Industry," Journal of Political Economy, University of Chicago Press, vol. 96(5), pages 921-947, October.
    38. Wesley M. Cohen & Richard R. Nelson & John P. Walsh, 2000. "Protecting Their Intellectual Assets: Appropriability Conditions and Why U.S. Manufacturing Firms Patent (or Not)," NBER Working Papers 7552, National Bureau of Economic Research, Inc.
    39. Alan P. Kirman, 1992. "Whom or What Does the Representative Individual Represent?," Journal of Economic Perspectives, American Economic Association, vol. 6(2), pages 117-136, Spring.
    40. Lichtenberg, Frank R., 1990. "Issues in measuring industrial R&D," Research Policy, Elsevier, vol. 19(2), pages 157-163, April.
    41. Segerstrom, Paul S, 1998. "Endogenous Growth without Scale Effects," American Economic Review, American Economic Association, vol. 88(5), pages 1290-1310, December.
    42. Barbara M. Fraumeni & Sumiye Okubo, 2005. "R&D in the National Income and Product Accounts: A First Look at Its Effect on GDP," NBER Chapters, in: Measuring Capital in the New Economy, pages 275-322, National Bureau of Economic Research, Inc.
    43. Arellano, M, 1987. "Computing Robust Standard Errors for Within-Groups Estimators," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 49(4), pages 431-434, November.
    44. Roeger, Werner, 1995. "Can Imperfect Competition Explain the Difference between Primal and Dual Productivity Measures? Estimates for U.S. Manufacturing," Journal of Political Economy, University of Chicago Press, vol. 103(2), pages 316-330, April.
    45. Li, Chol-Won, 2001. "On the Policy Implications of Endogenous Technological Progress," Economic Journal, Royal Economic Society, vol. 111(471), pages 164-179, May.
    46. Fudenberg, Drew & Gilbert, Richard & Stiglitz, Joseph & Tirole, Jean, 1983. "Preemption, leapfrogging and competition in patent races," European Economic Review, Elsevier, vol. 22(1), pages 3-31, June.
    47. Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022834, December.
    48. Philippe Aghion, 2009. "Growth and Education," World Bank Publications - Books, The World Bank Group, number 27936, December.
    49. Denis Audet, 2003. "Government procurement: A synthesis report," OECD Journal on Budgeting, OECD Publishing, vol. 2(3), pages 149-194.
    50. Schmookler, Jacob, 1962. "Economic Sources of Inventive Activity," The Journal of Economic History, Cambridge University Press, vol. 22(1), pages 1-20, March.
    51. Atlas, Cary M, et al, 1995. "Slicing the Federal Government Net Spending Pie: Who Wins, Who Loses, and Why," American Economic Review, American Economic Association, vol. 85(3), pages 624-629, June.
    52. Rosenberg, Nathan, 1969. "The Direction of Technological Change: Inducement Mechanisms and Focusing Devices," Economic Development and Cultural Change, University of Chicago Press, vol. 18(1), pages 1-24, Part I Oc.
    53. Carl Davidson & Paul Segerstrom, 1998. "R&D Subsidies and Economic Growth," RAND Journal of Economics, The RAND Corporation, vol. 29(3), pages 548-577, Autumn.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Serenella Caravella & Francesco Crespi, 2021. "The role of public procurement as innovation lever: evidence from Italian manufacturing firms," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 30(7), pages 663-684, October.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Simon Wiederhold, 2012. "The Role of Public Procurement in Innovation: Theory and Empirical Evidence," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 43.
    2. Simon Wiederhold, 2009. "Government Spending Composition in a Simple Model of Schumpeterian Growth," Jena Economics Research Papers 2009-101, Friedrich-Schiller-University Jena.
    3. Viktor Slavtchev & Simon Wiederhold, 2012. "Technological Intensity of Government Demand and Innovation," ifo Working Paper Series 135, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    4. Viktor Slavtchev & Simon Wiederhold, 2016. "Does the Technological Content of Government Demand Matter for Private R&D? Evidence from US States," American Economic Journal: Macroeconomics, American Economic Association, vol. 8(2), pages 45-84, April.
    5. Oliver Falck & Simon Wiederhold, 2013. "Demand-Oriented Innovation Policy: A Critical Review," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 51.
    6. Falck, Oliver & Wiederhold, Simon, 2013. "Nachfrageorientierte Innovationspolitik," Studien zum deutschen Innovationssystem 12-2013, Expertenkommission Forschung und Innovation (EFI) - Commission of Experts for Research and Innovation, Berlin.
    7. Cohen, Wesley M., 2010. "Fifty Years of Empirical Studies of Innovative Activity and Performance," Handbook of the Economics of Innovation, in: Bronwyn H. Hall & Nathan Rosenberg (ed.), Handbook of the Economics of Innovation, edition 1, volume 1, chapter 0, pages 129-213, Elsevier.
    8. Gianluca Pallante & Emanuele Russo & Andrea Roventini, 2020. "Does mission-oriented funding stimulate private R&D? Evidence from military R&D for US states," Working Papers hal-04097530, HAL.
    9. A. Minniti & F. Venturini, 2014. "R&D Policy and Schumpeterian Growth: Theory and Evidence," Working Papers wp945, Dipartimento Scienze Economiche, Universita' di Bologna.
    10. Gianluca Pallante & Emanuele Russo & Andrea Roventini, 2020. "Does public R&D funding crowd-in private R&D investment? Evidence from military R&D expenditures for US states," LEM Papers Series 2020/32, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    11. T. Gries & R. Grundmann & I. Palnau & M. Redlin, 2017. "Innovations, growth and participation in advanced economies - a review of major concepts and findings," International Economics and Economic Policy, Springer, vol. 14(2), pages 293-351, April.
    12. Stavins, Robert & Jaffe, Adam & Newell, Richard, 2000. "Technological Change and the Environment," Working Paper Series rwp00-002, Harvard University, John F. Kennedy School of Government.
    13. Rebecca Williams & Les Oxley, 2016. "The Geography of Inventiveness in the Primary Sector: Some Initial Results for New Zealand, 1880–1895," Australian Economic History Review, Economic History Society of Australia and New Zealand, vol. 56(2), pages 151-173, July.
    14. RAITERI Emilio, 2015. "A time to nourish? Evaluating the impact of innovative public procurement on technological generality through patent data," Cahiers du GREThA (2007-2019) 2015-05, Groupe de Recherche en Economie Théorique et Appliquée (GREThA).
    15. Raiteri, Emilio, 2018. "A time to nourish? Evaluating the impact of public procurement on technological generality through patent data," Research Policy, Elsevier, vol. 47(5), pages 936-952.
    16. Josip Glaurdić & Vuk Vuković, 2017. "Granting votes: exposing the political bias of intergovernmental grants using the within-between specification for panel data," Public Choice, Springer, vol. 171(1), pages 223-241, April.
    17. Petra Moser, 2012. "Patent Laws and Innovation: Evidence from Economic History," NBER Working Papers 18631, National Bureau of Economic Research, Inc.
    18. Guerzoni, Marco & Raiteri, Emilio, 2015. "Demand-side vs. supply-side technology policies: Hidden treatment and new empirical evidence on the policy mix," Research Policy, Elsevier, vol. 44(3), pages 726-747.
    19. Jaffe, Adam B. & Newell, Richard G. & Stavins, Robert N., 2003. "Chapter 11 Technological change and the environment," Handbook of Environmental Economics, in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 1, chapter 11, pages 461-516, Elsevier.
    20. Kevin A. Bryan & Heidi L. Williams, 2021. "Innovation: Market Failures and Public Policies," NBER Working Papers 29173, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    public demand; technological change; endogenous growth;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:jrp:jrpwrp:2011-036. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Markus Pasche (email available below). General contact details of provider: http://www.jenecon.de .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.