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A by-product of big government: the attenuating role of public procurement for the effectiveness of grants-based entrepreneurship policy

Author

Listed:
  • Peter Grajzl

    (Washington and Lee University
    CESifo)

  • Stjepan Srhoj

    (University of Split)

  • Jaka Cepec

    (University of Ljubljana)

  • Barbara Mörec

    (University of Ljubljana)

Abstract

We study the contextual role of public procurement for the effectiveness of grants-based entrepreneurship policy. Drawing on the resource-based view of the firm, we argue that partaking in procurement can erode grant effectiveness by relaxing a firm’s preexisting financial constraints and diverting managerial attention away from market-centered resource configurations. To test our hypothesis, we use detailed firm-level data from Slovenia and combine matching with difference-in-differences. When firms are not involved in procurement, all investigated types of grants meet the intended policy goals, apart from productivity growth. In contrast, when firms participate in procurement, small-business grants exhibit generally weaker effects, R&D grants fail to have any impact, and employment grants lastingly reduce firm productivity. Given that public procurement occupies a large footprint in many economies, our analysis highlights an unintended adverse by-product of big government and underscores the limits of state capitalism.

Suggested Citation

  • Peter Grajzl & Stjepan Srhoj & Jaka Cepec & Barbara Mörec, 2024. "A by-product of big government: the attenuating role of public procurement for the effectiveness of grants-based entrepreneurship policy," Small Business Economics, Springer, vol. 62(3), pages 895-916, March.
    • Handle: RePEc:kap:sbusec:v:62:y:2024:i:3:d:10.1007_s11187-023-00788-w
    DOI: 10.1007/s11187-023-00788-w
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    More about this item

    Keywords

    Government grants; Public procurement; Firms; Contextual effects; Big government; State capitalism;
    All these keywords.

    JEL classification:

    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • P12 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Enterprises
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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