Government Purchases and Firm Growth

41 Pages Posted: 16 Apr 2021 Last revised: 4 Aug 2021

See all articles by Munseob Lee

Munseob Lee

University of California San Diego

Date Written: August 3, 2021

Abstract

Public procurement accounts for a substantial portion of taxpayers' money and firms' revenue. To prove a causal relationship between government purchases and firm growth, I exploit an auction mechanism in Korea where contracts are randomly allocated. I find that a short-term contract induces long-term changes in the winning firm's growth, especially among small, young, and financially constrained firms. I also show that these firms grow their private operations. I explore four plausible mechanisms behind this persistent growth: (i) building reputation in private markets, (ii) learning-by-doing, (iii) overcoming financial constraints, and (iv) making irreversible investments. The data support the first three mechanisms.

Keywords: government purchases, firm growth

JEL Classification: O12, O23

Suggested Citation

Lee, Munseob, Government Purchases and Firm Growth (August 3, 2021). Available at SSRN: https://ssrn.com/abstract=3823255 or http://dx.doi.org/10.2139/ssrn.3823255

Munseob Lee (Contact Author)

University of California San Diego ( email )

9500 Gilman Drive
La Jolla, CA 92093
United States

HOME PAGE: http://sites.google.com/site/munseob

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