Domestic Laws and Protectionism in Government Procurement

This paper examines how procurement rules affect international trade, leveraging a novel dataset that characterizes national laws across 141 countries. Text analysis of national laws on government procurement identifies prevalent protectionist measures such as preferential treatment for domestic bidders and mandatory domestic sourcing. A descriptive analysis reveals that 124 countries incorporate preferential treatment provisions, highlighting the widespread nature of protectionism. The prevalence of procurement policies characterized as protectionist negatively correlates with trade openness across countries, in both public and private markets. This protectionist effect is confirmed in gravity regressions. Countries with more protectionist procurement laws are found to trade more domestically than from abroad in procurement markets. Industry-level estimates suggest that these effects are stronger for goods than for services.