IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/21219.html
   My bibliography  Save this paper

Procuring Firm Growth: The Effects of Government Purchases on Firm Dynamics

Author

Listed:
  • Claudio Ferraz
  • Frederico Finan
  • Dimitri Szerman

Abstract

This paper tests whether demand shocks affect firm dynamics. We examine whether firms that win government procurement contracts grow more compared to firms that compete for these contracts but do not win. We assemble a comprehensive data set combining matched employer-employee data for the universe of formal firms in Brazil with the universe of federal government procurement contracts over the period of 2004 to 2010. Exploiting a quasi-experimental design, we find that winning at least one contract in a given quarter increases firm growth by 2.2 percentage points over that quarter, with 93% of the new hires coming from either unemployment or the informal sector. These effects also persist well beyond the length of the contracts. Part of this persistence comes from firms participating and wining more future auctions, as well as penetrating other markets.

Suggested Citation

  • Claudio Ferraz & Frederico Finan & Dimitri Szerman, 2015. "Procuring Firm Growth: The Effects of Government Purchases on Firm Dynamics," NBER Working Papers 21219, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:21219
    Note: DEV LS PR
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w21219.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Jan De Loecker, 2011. "Product Differentiation, Multiproduct Firms, and Estimating the Impact of Trade Liberalization on Productivity," Econometrica, Econometric Society, vol. 79(5), pages 1407-1451, September.
    2. John Sutton, 1997. "Gibrat's Legacy," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 40-59, March.
    3. Mireia Jofre-Bonet & Martin Pesendorfer, 2003. "Estimation of a Dynamic Auction Game," Econometrica, Econometric Society, vol. 71(5), pages 1443-1489, September.
    4. World Bank, 2004. "Brazil : Country Procurement Assessment Report," World Bank Publications - Reports 14590, The World Bank Group.
    5. Andrea Pozzi & Fabiano Schivardi, 2016. "Demand or productivity: what determines firm growth?," RAND Journal of Economics, RAND Corporation, vol. 47(3), pages 608-630, August.
    6. Philippe Aghion & Jing Cai & Mathias Dewatripont & Luosha Du & Ann Harrison & Patrick Legros, 2022. "Industrial Policy and Competition," World Scientific Book Chapters, in: Globalization, Firms, and Workers, chapter 15, pages 349-380, World Scientific Publishing Co. Pte. Ltd..
    7. David Atkin & Amit K. Khandelwal & Adam Osman, 2014. "Exporting and Firm Performance: Evidence from a Randomized Trial," NBER Working Papers 20690, National Bureau of Economic Research, Inc.
    8. Chang-Tai Hsieh & Peter J. Klenow, 2014. "The Life Cycle of Plants in India and Mexico," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(3), pages 1035-1084.
    9. Luís M B Cabral & José Mata, 2003. "On the Evolution of the Firm Size Distribution: Facts and Theory," American Economic Review, American Economic Association, vol. 93(4), pages 1075-1090, September.
    10. Rafael Rob & Arthur Fishman, 2005. "Is Bigger Better? Customer Base Expansion through Word-of-Mouth Reputation," Journal of Political Economy, University of Chicago Press, vol. 113(5), pages 1146-1175, October.
    11. Lucia Foster & John Haltiwanger & Chad Syverson, 2016. "The Slow Growth of New Plants: Learning about Demand?," Economica, London School of Economics and Political Science, vol. 83(329), pages 91-129, January.
    12. Semykina, Anastasia & Wooldridge, Jeffrey M., 2010. "Estimating panel data models in the presence of endogeneity and selection," Journal of Econometrics, Elsevier, vol. 157(2), pages 375-380, August.
    13. Ockenfels, Axel & Roth, Alvin E., 2006. "Late and multiple bidding in second price Internet auctions: Theory and evidence concerning different rules for ending an auction," Games and Economic Behavior, Elsevier, vol. 55(2), pages 297-320, May.
    14. Lukasz A. Drozd & Jaromir B. Nosal, 2012. "Understanding International Prices: Customers as Capital," American Economic Review, American Economic Association, vol. 102(1), pages 364-395, February.
    15. Daron Acemoglu & Ufuk Akcigit & Harun Alp & Nicholas Bloom & William Kerr, 2018. "Innovation, Reallocation, and Growth," American Economic Review, American Economic Association, vol. 108(11), pages 3450-3491, November.
    16. François Gourio & Leena Rudanko, 2014. "Customer Capital," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 81(3), pages 1102-1136.
    17. Erzo G. J. Luttmer, 2011. "On the Mechanics of Firm Growth," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 78(3), pages 1042-1068.
    18. Gustavo Gonzaga, 2003. "Labor Turnover and Labor Legislation in Brazil," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Fall 2003), pages 165-222, August.
    19. Teresa C Fort & John Haltiwanger & Ron S Jarmin & Javier Miranda, 2013. "How Firms Respond to Business Cycles: The Role of Firm Age and Firm Size," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 61(3), pages 520-559, August.
    20. Lorenzo Caliendo & Esteban Rossi-Hansberg, 2012. "The Impact of Trade on Organization and Productivity," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 127(3), pages 1393-1467.
    21. Andrew Atkeson & Patrick J. Kehoe, 2005. "Modeling and Measuring Organization Capital," Journal of Political Economy, University of Chicago Press, vol. 113(5), pages 1026-1053, October.
    22. Costas Arkolakis, 2010. "Market Penetration Costs and the New Consumers Margin in International Trade," Journal of Political Economy, University of Chicago Press, vol. 118(6), pages 1151-1199.
    23. Costas Arkolakis & Theodore Papageorgiou & Olga Timoshenko, 2018. "Firm Learning and Growth," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 27, pages 146-168, January.
      • Costas Arkolakis & Theodore Papageorgiou & Olga A. Timoshenko, 2015. "Firm Learning and Growth," Working Papers 2015-5, The George Washington University, Institute for International Economic Policy.
    24. Dimitri,Nicola & Piga,Gustavo & Spagnolo,Giancarlo (ed.), 2011. "Handbook of Procurement," Cambridge Books, Cambridge University Press, number 9781107402317.
    25. repec:zbw:bofrdp:2013_022 is not listed on IDEAS
    26. Lorenz Kueng & Mu-Jeung Yang & Bryan Hong, 2014. "Sources of Firm Life-Cycle Dynamics: Differentiating Size vs. Age Effects," NBER Working Papers 20621, National Bureau of Economic Research, Inc.
    27. Alvin E. Roth & Axel Ockenfels, 2002. "Last-Minute Bidding and the Rules for Ending Second-Price Auctions: Evidence from eBay and Amazon Auctions on the Internet," American Economic Review, American Economic Association, vol. 92(4), pages 1093-1103, September.
    28. Valerie A. Ramey, 2011. "Can Government Purchases Stimulate the Economy?," Journal of Economic Literature, American Economic Association, vol. 49(3), pages 673-685, September.
    29. Eric Bartelsman & John Haltiwanger & Stefano Scarpetta, 2013. "Cross-Country Differences in Productivity: The Role of Allocation and Selection," American Economic Review, American Economic Association, vol. 103(1), pages 305-334, February.
    Full references (including those not matched with items on IDEAS)

    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. Gumpert, Anna & Li, Haishi & Moxnes, Andreas & Ramondo, Natalia & Tintelnot, Felix, 2020. "The life-cycle dynamics of exporters and multinational firms," Journal of International Economics, Elsevier, vol. 126(C).
    2. Pau Roldan & Sophia Gilbukh, 2017. "Firm Dynamics and Pricing under Customer Capital Accumulation," 2017 Meeting Papers 1235, Society for Economic Dynamics.
    3. Vincent Sterk & Petr Sedláček & Benjamin Pugsley, 2021. "The Nature of Firm Growth," American Economic Review, American Economic Association, vol. 111(2), pages 547-579, February.
    4. Ufuk Akcigit & William R. Kerr, 2018. "Growth through Heterogeneous Innovations," Journal of Political Economy, University of Chicago Press, vol. 126(4), pages 1374-1443.
    5. Allen Tran, 2013. "Customer Driven Establishment Dynamics and Allocative Efficiency," 2013 Meeting Papers 115, Society for Economic Dynamics.
    6. Nicolas Berman & Vincent Rebeyrol & Vincent Vicard, 2019. "Demand Learning and Firm Dynamics: Evidence from Exporters," The Review of Economics and Statistics, MIT Press, vol. 101(1), pages 91-106, March.
    7. Jonas Hjort & Vinayak Iyer & Golvine de Rochambeau, 2020. "Informational Barriers to Market Access: Experimental Evidence from Liberian Firms," SciencePo Working papers hal-03389180, HAL.
    8. Costas Arkolakis, 2016. "A Unified Theory of Firm Selection and Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(1), pages 89-155.
    9. Cappelletti, Matilde & Giuffrida, Leonardo M., 2021. "Procuring survival," ZEW Discussion Papers 21-093, ZEW - Leibniz Centre for European Economic Research.
    10. repec:hal:wpspec:info:hdl:2441/6jahov5tde8vt9aplqrgg3trl4 is not listed on IDEAS
    11. Roldan-Blanco, Pau & Gilbukh, Sonia, 2021. "Firm dynamics and pricing under customer capital accumulation," Journal of Monetary Economics, Elsevier, vol. 118(C), pages 99-119.
    12. Jonas Hjort & Vinayak Iyer & Golvine de Rochambeau, 2020. "Informational Barriers to Market Access: Experimental Evidence from Liberian Firms," SciencePo Working papers Main hal-03389180, HAL.
    13. repec:hal:spmain:info:hdl:2441/6jahov5tde8vt9aplqrgg3trl4 is not listed on IDEAS
    14. Chen, Cheng & Senga, Tatsuro & Sun, Chang & Zhang, Hongyong, 2023. "Uncertainty, imperfect information, and expectation formation over the firm’s life cycle," Journal of Monetary Economics, Elsevier, vol. 140(C), pages 60-77.
    15. Neira, Julian, 2019. "Bankruptcy and cross-country differences in productivity," Journal of Economic Behavior & Organization, Elsevier, vol. 157(C), pages 359-381.
    16. Paulo Bastos & Daniel A. Dias & Olga A. Timoshenko, 2018. "Learning, prices and firm dynamics," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 51(4), pages 1257-1311, November.
    17. Silviano Esteve-Pérez & Fabio Pieri & Diego Rodriguez, 2022. "One swallow does not make a summer: episodes and persistence in high growth," Small Business Economics, Springer, vol. 58(3), pages 1517-1544, March.
    18. Yaniv Yedid-Levi & Stefanie Haller & Doireann Fitzgerald, 2016. "How Exporters Grow," 2016 Meeting Papers 499, Society for Economic Dynamics.
    19. Chiara Criscuolo & Peter N. Gal & Carlo Menon, 2014. "The Dynamics of Employment Growth: New Evidence from 18 Countries," CEP Discussion Papers dp1274, Centre for Economic Performance, LSE.
    20. Luigi Paciello & Andrea Pozzi & Nicholas Trachter, 2019. "Price Dynamics With Customer Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 60(1), pages 413-446, February.
    21. Eero Mäkynen & Oskari Vähämaa, 2021. "Uncertainty, Misallocation and the Life-cycle Growth of Firms," Discussion Papers 146, Aboa Centre for Economics.
    22. Mion, Giordano & Opromolla, Luca David & Sforza, Alessandro, 2016. "The Diffusion of Knowledge via Managers' Mobility," CEPR Discussion Papers 11706, C.E.P.R. Discussion Papers.

    More about this item

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F66 - International Economics - - Economic Impacts of Globalization - - - Labor
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

    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:nbr:nberwo:21219. 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: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    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.