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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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    File URL: https://mpra.ub.uni-muenchen.de/87015/1/MPRA_paper_87015.pdf
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    References listed on IDEAS

    as
    1. 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.
    2. 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.
    3. Czarnitzki, Dirk & Hünermund, Paul & Moshgbar, Nima, 2018. "Public procurement as policy instrument for innovation," ZEW Discussion Papers 18-001, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    4. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-670, May.
    5. Hoekman, Bernard & 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.
    6. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-1150, September.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Demand Shocks; firm growth; public procurement;

    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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