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- Title
A by-product of big government: the attenuating role of public procurement for the effectiveness of grants-based entrepreneurship policy.
- Authors
Grajzl, Peter; Srhoj, Stjepan; Cepec, Jaka; Mörec, Barbara
- Abstract
We study the contextual role of public procurement for the effectiveness of grants-based entrepreneurship policy. Drawing on the resource-based view of the firm, we argue that partaking in procurement can erode grant effectiveness by relaxing a firm's preexisting financial constraints and diverting managerial attention away from market-centered resource configurations. To test our hypothesis, we use detailed firm-level data from Slovenia and combine matching with difference-in-differences. When firms are not involved in procurement, all investigated types of grants meet the intended policy goals, apart from productivity growth. In contrast, when firms participate in procurement, small-business grants exhibit generally weaker effects, R&D grants fail to have any impact, and employment grants lastingly reduce firm productivity. Given that public procurement occupies a large footprint in many economies, our analysis highlights an unintended adverse by-product of big government and underscores the limits of state capitalism. Plain English Summary: This study explores how public procurement shapes the effectiveness of grants-based entrepreneurship policy. If procurement loosens firm's preexisting financial constraints or induces businesses to prioritize contracting with the government over other market opportunities, then public procurement could reduce the effectiveness of government grants. Empirical evidence from Slovenia supports this perspective. When firms do not partake in procurement, all examined types of grants achieve their intended policy goals, except for productivity growth. However, when firms are involved in public procurement, the effectiveness of the grants diminishes dramatically: small-business grants have weaker effects in general, R&D grants do not exert any impact, and employment grants decrease firm productivity. Thus, the principal implication of this study is that public procurement can hamper the effectiveness of grants-based entrepreneurship policy. The research also contributes to the understanding of the unintended consequences of big government and the limitations of state capitalism.
- Subjects
SLOVENIA; GOVERNMENT purchasing; POLITICAL entrepreneurship; ELECTRONIC procurement; RESOURCE-based theory of the firm; GOVERNMENT aid; STATE capitalism
- Publication
Small Business Economics, 2024, Vol 62, Issue 3, p895
- ISSN
0921-898X
- Publication type
Article
- DOI
10.1007/s11187-023-00788-w