Can Government Demand Stimulate Private Investment? Evidence from U.S. Federal Procurement

Shafik Hebous and Tom Zimmermann

No 2016/060, IMF Working Papers from International Monetary Fund

Abstract: We study the effects of federal purchases on firms’ investment using a novel panel dataset that combines federal procurement contracts in the United States with key financial firm-level information. We find that 1 dollar of federal spending increases firms’ capital investment by 7 to 11 cents. The average effect masks heterogeneity: Effects are stronger for firms that face financing constraints and they are close to 0 for unconstrained firms. In line with the financial accelerator model, our findings indicate that the effect of government purchases works through easing firms’ access to external borrowing. Furthermore, industry-level analysis suggests that that the increase in investment at the firm level translates into an industry-wide effect without crowding-out capital investment of other firms in the same industry.

Keywords: WP; capital investment; book value; firm FE; external borrowing; Investment; Federal Procurement; Financing Constraints; Spending Multipliers; awarded firm-quarter contract; firm level; constrained firm; firm-quarter level; stock market information; investment response; firm size; Capital spending; Credit ratings; Currencies; Private investment (search for similar items in EconPapers)
Pages: 33
Date: 2016-03-10
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=43784 (application/pdf)

Related works:
Journal Article: Can government demand stimulate private investment? Evidence from U.S. federal procurement (2021)
Working Paper: Can government demand stimulate private investment? Evidence from U.S. federal procurement (2019)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:2016/060

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().