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

Julian di Giovanni, Manuel Garcia-Santana, Priit Jeenas, Enrique Moral-Benito and Josep Pijoan-Mas

No 1006, Staff Reports from Federal Reserve Bank of New York

Abstract: This paper examines the macroeconomic effects of public procurement. We exploit novel data to show that procurement eases firms’ borrowing constraints and has persistent effects on firm growth. Using a macroeconomic model with heterogeneous firms, asset- and earnings-based borrowing frictions, and government purchasing, we simulate revenue-neutral reforms that increase the share of small firms in procurement. We find that, despite helping financially constrained firms grow, these policies lead to non-trivial unintended negative effects. On net, the policies lead to a modest decline in GDP. The findings highlight how procurement design influences aggregate outcomes through firm-level financial frictions and reallocation dynamics.

Keywords: government procurement; financial frictions; capital accumulation; productivity (search for similar items in EconPapers)
JEL-codes: E22 E23 E62 G32 (search for similar items in EconPapers)
Pages: 97
Date: 2022-02-01
New Economics Papers: this item is included in nep-ban, nep-bec, nep-cfn, nep-cta, nep-dge, nep-eff, nep-ent, nep-mac and nep-sbm
Note: Revised June 2025. Previous title: “Government Procurement and Access to Credit: Firm Dynamics and Aggregate Implications”
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Working Paper: Buy Big or Buy Small ? Procurement Policies, Firms’ Financing, and the Macroeconomy (2023)
Working Paper: Buy Big or Buy Small? Procurement Policies, Firms' Financing, and the Macroeconomy (2022)
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