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Does federal contracting spur development? Federal contracts, income, output, and jobs in US cities

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  • Rodríguez-Pose, Andrés
  • Gerritse, Michiel

Abstract

Firms and governments alike frequently court federal government contracts to generate more jobs and trigger economic growth. However, the employment and output impact of government contracts remains controversial. We use georeferenced data on United States (US) federal contracts, distinguishing between the location of the recipient and the location of the activity, for the years 2005-2014 in order to assess the employment and output impacts of federal contracting in metropolitan areas of the US. We resort to a shift-share instrument and precise location-specific fixed effects to estimate the causal impact of spending. Cities that receive more contract expenditure witness an expansion in output – with contracts generating $1.4 per dollar spent – but experience only modest increases in employment. The impact is also constrained geographically and short-lived. The results suggest that, on average, the effects of federal contracting on local economies are modest, meaning that attracting federal contracts may not be an effective urban development strategy.

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  • Rodríguez-Pose, Andrés & Gerritse, Michiel, 2018. "Does federal contracting spur development? Federal contracts, income, output, and jobs in US cities," LSE Research Online Documents on Economics 90154, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:90154
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    2. Neil Lee & Andrés Rodríguez-Pose, 2021. "Entrepreneurship and the fight against poverty in US cities," Environment and Planning A, , vol. 53(1), pages 31-52, February.
    3. Andrés Rodríguez‐Pose & Roberto Ganau & Kristina Maslauskaite & Monica Brezzi, 2021. "Credit constraints, labor productivity, and the role of regional institutions: Evidence from manufacturing firms in Europe," Journal of Regional Science, Wiley Blackwell, vol. 61(2), pages 299-328, March.
    4. Komarek, Timothy M. & Butts, Kyle & Wagner, Gary A., 2022. "Government Contracting, Labor Intensity, and the Local Effects of Fiscal Consolidation: Evidence from the Budget Control Act of 2011," Journal of Urban Economics, Elsevier, vol. 132(C).
    5. Borys Cie?lak & Paula Nagler & Frank van Oort, 2023. "Regional Capital No More. How the Reform of the Territorial Government has Marginalized Polish Middle-sized Cities," Tinbergen Institute Discussion Papers 23-001/VIII, Tinbergen Institute.
    6. Komarek, Timothy M. & Wagner, Gary A., 2020. "The distributional effects of job loss from fiscal consolidation: Evidence from the Budget Control Act of 2011," Economics Letters, Elsevier, vol. 196(C).
    7. Räsänen, Johannes & Mäkelä, Erik, 2021. "The effect of government spending on local economies during an economic downturn," European Economic Review, Elsevier, vol. 134(C).

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    More about this item

    Keywords

    federal contracting; government spending; jobs; wages; economic growth; urban development;
    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
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy
    • R58 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Regional Development Planning and Policy

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