Border Effects in European Public Procurement

Abstract

In this paper we document border effects in the award of public contracts in the European Single Market. We use a data set of 1.8 million contract awards that have been matched to geo-locations to estimate a gravity model of procurement flows between European NUTS3 region pairs. Cross-national border effects are very sizable, even after controlling for physical distance, currency, cultural differences, and other variables: "local" bidders are over 900 times more likely to be awarded a contract than "foreign" bidders. More surprisingly, we find substantial cross-regional border effects within countries. Border effects exist for all types of goods and services. While we find evidence that already firms' bidding decisions are subject to border effects, we cannot exclude a home bias of contracting authorities in the award of public contracts.

Keywords: public procurement, public contract, border effect, gravity model, European Union

JEL Classification: H57, F14, F15