The Impact of Government Procurement Composition on Private R&D Activities Volume 5 Jena Economic Research Papers 2011-09-01 2011 2007 2011-036 public demand technological change endogenous growth 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. jportal_jpjournal_00000016 2011-09-15T09:36:49.499Z 2011-09-06T08:08:44.282Z