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Government procurement and resource misallocation: Evidence from China

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  • Hang, Jing
  • Zhan, Chaoqun

Abstract

Government often acts as the largest buyer in an economy through government procurement. The allocation of procurement orders however is often distorted. We build a model with heterogeneous firms endogenously seeking government favors in procurement to show that misallocation of procurement orders further leads to misallocation of production factors. Using the enactment of the in 2003 as a natural experiment, we find that tighter regulation of procurement in China lowers the extent of resource misallocation in industries that rely more on government procurement. We further provide firm-level evidence in support of our model.

Suggested Citation

  • Hang, Jing & Zhan, Chaoqun, 2023. "Government procurement and resource misallocation: Evidence from China," Journal of Economic Behavior & Organization, Elsevier, vol. 216(C), pages 568-589.
    • Handle: RePEc:eee:jeborg:v:216:y:2023:i:c:p:568-589
    DOI: 10.1016/j.jebo.2023.10.014
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    Cited by:

    1. J. Atsu Amegashie, 2024. "Rules, Discretion, Corruption, and Efficient Sole-Sourcing in Procurement," CESifo Working Paper Series 11489, CESifo.

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    More about this item

    Keywords

    Government procurement; Resource misallocation; Corruption;
    All these keywords.

    JEL classification:

    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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