Econometric Analyses of Home Bias in Government Procurement

Abstract

The extent of discrimination in government procurement and its impact on economic efficiency has attracted both theoretical and analytical work, but little econometric evidence. We bridge this gap by building a new sector‐level dataset on domestic and foreign purchases by Japanese and Swiss governments over 1990–2003 to undertake “new” econometric analyses. Unlike previous work, we explain home‐bias using variables inspired by the political economy, trade‐macroeconomic and procurement literatures. We also provide “new” econometric evidence for previous theoretical predictions. Our results reveal the importance of domestic‐foreign productivity differences in governments’ cross‐border purchases and also support previous theoretical predictions. However, Membership of the World Trade Organizations's Agreement on Government Procurement is not found to increase market access.