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Government Demand and Firm Growth

Author

Listed:
  • Hoekman, Bernard
  • Sanfilippo, Marco
  • Santi, Filippo
  • Ticku, Rohit

Abstract

Public procurement in developing countries accounts for approximately 13% of GDP, offering a significant market opportunity for domestic firms, especially those facing demand constraints. This paper explores the impact of selling to government entities on firm performance in Uganda, leveraging detailed administrative data and an event study methodology that corrects for firm self-selection and heterogeneity in the timing of the treatment. The results reveal that while firms increase their total sales after entering government contracts, they do not see improvements in productivity (measured by value added per worker). Moreover, sales to non-government customers drop sharply. This reallocation effect is persistent. The effect is not observed when firms sell to large private-sector buyers. Drawing on an original survey of firms engaged in public procurement, we highlight potential drivers of these dynamics, including capacity constraints and profitability differences between public and private sector sales

Suggested Citation

  • Hoekman, Bernard & Sanfilippo, Marco & Santi, Filippo & Ticku, Rohit, 2024. "Government Demand and Firm Growth," CEPR Discussion Papers 19673, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:19673
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    File URL: https://cepr.org/publications/DP19673
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    Keywords

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    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis

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