Working Paper: NBER ID: w21219
Authors: Claudio Ferraz; Frederico Finan; Dimitri Szerman
Abstract: This paper tests whether demand shocks affect firm dynamics. We examine whether firms that win government procurement contracts grow more compared to firms that compete for these contracts but do not win. We assemble a comprehensive data set combining matched employer-employee data for the universe of formal firms in Brazil with the universe of federal government procurement contracts over the period of 2004 to 2010. Exploiting a quasi-experimental design, we find that winning at least one contract in a given quarter increases firm growth by 2.2 percentage points over that quarter, with 93% of the new hires coming from either unemployment or the informal sector. These effects also persist well beyond the length of the contracts. Part of this persistence comes from firms participating and wining more future auctions, as well as penetrating other markets.
Keywords: government procurement; firm growth; demand shocks; Brazil
JEL Codes: F14; F66; J21; O0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Winning a government procurement contract (H57) | Firm growth (L25) |
| Winning a government procurement contract (H57) | Future auction participation (D44) |
| Winning a government procurement contract (H57) | Higher win rate (C52) |
| Winning a government procurement contract (H57) | Firm growth (persistence) (D25) |
| Winning a government procurement contract (H57) | Younger firms exhibit stronger growth responses (L25) |