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

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  • 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
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    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

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