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Buy Big or Buy Small? Procurement Policies, Firms' Financing, and the Macroeconomy

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  • Julian di Giovanni
  • Manuel García-Santana
  • Priit Jeenas
  • Enrique Moral-Benito
  • Josep Pijoan-Mas

Abstract

We provide a framework to study how public procurement affects the macroeconomy. Merging firm and procurement contract level data, we find evidence consistent with procurement acting as collateral for firms and facilitating long-run firm growth. We build a firm-dynamics model with asset- and earnings-based borrowing constraints and a government purchasing goods and services to analyze selection into procurement and firm dynamics after winning procurement contracts. We use the model to study the macroeconomic effects of expenditure-neutral policy reforms promoting small firms' participation in procurement and show how the impact on economic activity depends on the specific features of the reforms.

Suggested Citation

  • Julian di Giovanni & Manuel García-Santana & Priit Jeenas & Enrique Moral-Benito & Josep Pijoan-Mas, 2022. "Buy Big or Buy Small? Procurement Policies, Firms' Financing, and the Macroeconomy," Working Papers 1321, Barcelona School of Economics.
    • Handle: RePEc:bge:wpaper:1321
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    Cited by:

    1. Bernard Hoekman & Marco Sanfilippo & Filippo Santi, 2022. "Government Demand and Domestic Firms Growth: Evidence from Uganda," RSCAS Working Papers 2022/54, European University Institute.
    2. Bessonova, Evguenia, 2023. "Firms’ efficiency, exits and government procurement contracts," European Journal of Political Economy, Elsevier, vol. 76(C).
    3. Cappelletti, Matilde & Giuffrida, Leonardo M., 2021. "Procuring survival," ZEW Discussion Papers 21-093, ZEW - Leibniz Centre for European Economic Research.

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    More about this item

    Keywords

    Government procurement; financial frictions; capital accumulation; aggregate productivity;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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