Foreign Market Access in Government Procurement: Evidence from Japan and Switzerland

Abstract

A home-bias in public purchases can have non-trivial efficiency effects, especially in times of crises. Using unexplored Japanese and Swiss public procurement data over 1990-2003, we examine the presence of a home-bias by controlling for the effect of macroeconomic, political economy, procurement-specific and domestic policy factors on governments’ sourcing decisions. We also provide an empirical test of Baldwin's (1970, 1984) "neutrality proposition" and of the effectiveness of the WTO's Agreement on Government Procurement (GPA) in increasing foreign market access. Our results suggest that Swiss public purchases may have been more discriminatory than the Japanese’s during this period. They also reveal the importance of procurement demand magnitude and domestic-foreign productivity differences in both governments' cross-border purchases. However, the expected impact of traditional macroeconomic variables, political budget cycles and public-private imports substitutability does not come through. Significantly, membership of the GPA is not found to increase foreign access to either country’s public markets.

Keywords: Government procurement, home-bias, market access, GPA, Japan, Switzerland

JEL Classification: F10, F13, F14, D72, H57