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Government Procurement and the Growth of Small Firms

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  • Fadic, Milenko

Abstract

I estimate the causal effects of demand shocks, stemming from government procurement, on the growth of small firms in Ecuador. I assemble a unique dataset using several new administrative sources and, as identification strategy, exploit a governmental procurement process that allocates public contracts through a randomized contest. This paper provides three main contributions to the literature. First, it shows the positive and significant effect of demand shocks on firm growth. On average, an increase in demand of 10% will increase wage expenses by 4% and fixed assets by 5% during the year of the shock. Second, it finds no evidence of spill-over effects from demand shocks on sales to the public or private sector. Finally, as in other studies, it is shown that demand positively impacts firm growth but, contrary to other findings, this effect is temporary and only observed during the year of the shock.

Suggested Citation

  • Fadic, Milenko, 2018. "Government Procurement and the Growth of Small Firms," MPRA Paper 87015, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:87015
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    References listed on IDEAS

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    1. Dirk Czarnitzki & Paul Hünermund & Nima Moshgbar, 2018. "Public procurement as policy instrument for innovation," Working Papers of Department of Management, Strategy and Innovation, Leuven 606259, KU Leuven, Faculty of Economics and Business (FEB), Department of Management, Strategy and Innovation, Leuven.
    2. 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.
    3. Chad Syverson, 2004. "Market Structure and Productivity: A Concrete Example," Journal of Political Economy, University of Chicago Press, vol. 112(6), pages 1181-1222, December.
    4. Chang-Tai Hsieh & Peter J. Klenow, 2009. "Misallocation and Manufacturing TFP in China and India," The Quarterly Journal of Economics, Oxford University Press, vol. 124(4), pages 1403-1448.
    5. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-670, May.
    6. Sanfilippo, Marco, 2018. "Firm performance and participation in public procurement: Evidence from Sub-Saharan Africa," CEPR Discussion Papers 12752, C.E.P.R. Discussion Papers.
    7. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-1150, September.
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    Citations

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    Cited by:

    1. Tas, Bedri Kamil Onur, 2020. "SME Participation in Public Purchasing: Procurement Policy Matters," CEPR Discussion Papers 14836, C.E.P.R. Discussion Papers.
    2. Srhoj, Stjepan & Dragojević, Melko, 2021. "Public procurement and supplier job creation: Insights from auctions," MPRA Paper 110018, University Library of Munich, Germany.
    3. Bernard Hoekman & Marco Sanfilippo, 2020. "Foreign participation in public procurement and firm performance: evidence from sub-Saharan Africa," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 156(1), pages 41-73, February.
    4. Evguenia Bessonova, 2019. "Firms' Efficiency, Exits and Government procurement contracts," Bank of Russia Working Paper Series wps49, Bank of Russia.
    5. 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

    Demand Shocks; firm growth; public procurement;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement

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