This paper addresses the question of whether government procurement can work as a de facto innovation policy tool. We develop an endogenous growth model with quality-improving in-novation that incorporates industries with heterogeneous innovation sizes. Government demand in high-tech industries increases the market size in these industries and, with it, the incentives for private ﬁrms to invest in R&D. At the economy-wide level, the additional R&D induced in high-tech industries outweighs the R&D foregone in all remaining industries. The implications of the model are empirically tested using a unique data set that includes federal procurement in U.S. states. We ﬁnd evidence that a shift in the composition of government purchases toward high-tech industries indeed stimulates privately funded company R&D.
article pub. typess JER
article languages JER
JEL-Classification for JER
E62 - Fiscal Policy ; H54 - Infrastructures; Other Public Investment and Capital Stock ; O31 - Innovation and Invention: Processes and Incentives ; O32 - Management of Technological Innovation and R&D ; O41 - One, Two, and Multisector Growth Models