Letting Luck Decide: Government Procurement and the Growth of Small Firms. Issue 7 (2nd July 2020)

• Record Type: Journal Article
• Authors: Fadic, Milenko
• Is Part Of: Journal of development studies. Volume 56:Issue 7(2020)
• Page Start: 1263
• Page End: 1276
• Publication Date: 2020-07-02
• Subjects: Economic development -- Periodicals; Economic history -- 1945- -- Periodicals; Developing countries -- Economic conditions -- Periodicals; Développement économique -- Périodiques; Histoire économique -- 1945- -- Périodiques; Pays en voie de développement -- Conditions économiques -- Périodiques; 338.91
• DOI: 10.1080/00220388.2019.1666979
• Languages: English
• ISSNs: 0022-0388

Abstract

Abstract: I: estimate the causal effects of demand shocks, stemming from government procurement, on the growth of small firms in Ecuador. I assemble a unique dataset using several new administrative sources and, as identification strategy, exploit a governmental procurement process that allocates public contracts through a randomised contest. I find a positive and significant effect of demand shocks on firm growth. On average, an increase in demand of 10 per cent will increase wage expenses and fixed assets by approximately 5 per cent during the year of the shock. I also find no evidence of spillover effects from demand shocks on sales to the public or private sector. Finally, as in other studies, I show that demand positively impacts firm growth but, contrary to other findings, this effect is temporary and only observed during the year of the shock.