Trade Barriers in Government Procurement

Abstract

This paper estimates trade barriers in government procurement, a market that accounts for 12% of world GDP. Using data from inter-country input-output tables in a gravity model, we find that home bias in government procurement is significantly higher than in trade between firms. However, this difference has been shrinking over time. Results also show that trade agreements with provisions on government procurement increase cross-border flows of services, whereas the effect on goods is small and not different from that in private markets. Provisions containing transparency and procedural requirements drive the liberalizing effect of trade agreements.

Economic drivers of public procurement‐related protection

“…The home bias is lower in value-added terms, as foreign producers have indirect access to public markets through their downstream local clients providing goods and services to the governments. Consistent with the border effects literature à la McCallum (1995), the share of public spending in sectoral demand reinforces trade deflection (Crozet & Trionfetti, 2002;Gourdon & Messent, 2017;Mulabdic & Rotunno, 2021). Another strand of literature focusses on direct evidence of discrimination in public procurement relying on sectorlevel information on domestic and foreign purchases (Shingal, 2015).…”

“…Public procurement, which represents 14% of gross domestic product (GDP) in the European Union (EU) and 10% in the United States (US), (Cernat & Kutlina‐Dimitrova, 2015), is notoriously home‐biased (Trionfetti, 2000), possibly even twice as home‐biased as private purchases (Mulabdic & Rotunno, 2021). There are good reasons for such bias.…”

“…ously home-biased (Trionfetti, 2000), possibly even twice as home-biased as private purchases (Mulabdic & Rotunno, 2021). There are good reasons for such bias.…”