Overview
This series examines how government procurement shapes firms beyond immediate sales: a contract can make expected public earnings more pledgeable, expand credit, and support later growth, while constrained suppliers may crowd out private work first. Access rules determine who reaches that path, and U.S. state evidence shows effects on MWBE scale and entry. Spanish evidence, state comparisons, and calibrated models support conditional policy judgments, not universal forecasts.
Learning outcomes
- In Spanish data, procurement is followed by persistent credit growth, first in non-collateralized and later in collateralized credit.
- Government work can raise total sales while initially crowding out private sales, especially where financial constraints appear tighter.
- Application costs, experience, productivity, and net worth shape which firms can reach public contracts and their financing path.
- U.S. state preference bans were associated with smaller MWBE incumbents and fewer entrants, without a detected relative rise in exit.
- Calibrated reforms show that broader small-firm access can raise private output yet reduce modeled public output, making targeting essential.
Keywords
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PlansFAQ
Can a government contract improve a firm's access to credit?
Yes, in the Spanish evidence, firms receiving procurement contracts showed persistent credit growth, beginning mainly in non-collateralized credit and later including collateralized credit. The pattern is consistent with, but does not prove, more pledgeable public earnings.
Why can private sales fall after a firm wins public work?
Private sales can fall initially because a financially constrained firm redirects scarce labor, capital, or working capital to deliver the government order. In the Spanish evidence, private sales later recovered and rose above their earlier level.
What happens when state procurement preferences are removed?
In the Census study's five treated states, MWBE contractors were about 10.9% smaller in employment relative to comparison contractors after five years, and fewer new MWBEs entered. Existing MWBEs were not detectably more likely to exit.
Should governments favor small suppliers to help firms grow?
Not by size alone. In a calibrated model, shifting procurement toward smaller suppliers can raise private output while reducing public output and GDP, so access design should distinguish financial constraint from low productivity.