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An Empirical Study on the Effects of Public Procurement on the Productivity and Survivability of SMEs: Case of the Korean Mining and Manufacturing Sectors

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  • Chang, Woo Hyun

Abstract

This paper empirically studies the effect of public procurement on small and medium-sized enterprises (SMEs) in the Republic of Korea using firm-level data. Public procurement, the purchase of goods and services from private firms by the public sector, is regarded as an important policy measure for providing support to firms, particularly SMEs. This study uses establishment-level panel data of the mining and manufacturing sectors from the Korean National Bureau of Statistics (Statistics Korea) and procurement history from the Korean Public Procurement Service to empirically estimate the effects of public procurement on firms' productivity (total factor productivity) and survivability. Using a propensity score matching estimation method, we find that participating firms showed higher productivity than non-participating ones in the control group only for the year of participation, that is, 2009. After two years, in 2011, they exhibited significantly lower productivity. In contrast, establishments that participated in public procurement for SMEs in 2009 were more likely to survive than those that did not do so in 2011. These results can be interpreted as the negative consequences of government intervention. The market's efficiency enhancement is hindered if underserving companies survive owing to government intervention but fail to improve efficiency.

Suggested Citation

  • Chang, Woo Hyun, 2017. "An Empirical Study on the Effects of Public Procurement on the Productivity and Survivability of SMEs: Case of the Korean Mining and Manufacturing Sectors," KDI Journal of Economic Policy, Korea Development Institute (KDI), vol. 39(1), pages 1-18.
    • Handle: RePEc:zbw:kdijep:200801
    DOI: 10.23895/kdijep.2017.39.1.1
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    Cited by:

    1. Donghun Yoon, 2023. "The Improvement Policy Design of Public Procurement Process for the Public Management Innovation in South Korea," SAGE Open, , vol. 13(1), pages 21582440231, March.
    2. Dina Dardir, 2020. "Does the R&D Public Procurement Matter for High-Tech Exports? Evidence from the USA," Post-Print hal-04048942, HAL.

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    More about this item

    Keywords

    Public Procurement; Policy Evaluation; SME Policy; Total Factor Productivity; Propensity Score Matching;
    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
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General

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