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A by-product of big government: the attenuating role of public procurement for the effectiveness of grants-based entrepreneurship policy

Peter Grajzl, Stjepan Srhoj, Jaka Cepec (jaka.cepec@ef.uni-lj.si) and Barbara Mörec (barbara.moerec@ef.uni-lj.si)
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Jaka Cepec: University of Ljubljana
Barbara Mörec: University of Ljubljana

Small Business Economics, 2024, vol. 62, issue 3, No 3, 895-916

Abstract: Abstract We study the contextual role of public procurement for the effectiveness of grants-based entrepreneurship policy. Drawing on the resource-based view of the firm, we argue that partaking in procurement can erode grant effectiveness by relaxing a firm’s preexisting financial constraints and diverting managerial attention away from market-centered resource configurations. To test our hypothesis, we use detailed firm-level data from Slovenia and combine matching with difference-in-differences. When firms are not involved in procurement, all investigated types of grants meet the intended policy goals, apart from productivity growth. In contrast, when firms participate in procurement, small-business grants exhibit generally weaker effects, R&D grants fail to have any impact, and employment grants lastingly reduce firm productivity. Given that public procurement occupies a large footprint in many economies, our analysis highlights an unintended adverse by-product of big government and underscores the limits of state capitalism.

Keywords: Government grants; Public procurement; Firms; Contextual effects; Big government; State capitalism (search for similar items in EconPapers)
JEL-codes: H57 H81 L25 P12 P16 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s11187-023-00788-w

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