TD n. 639 2015
Claudio Ferraz, Frederico Finan, Dimitri Joe de Alencar Szerman.
This paper tests whether demand shocks affect firm dynamics. We examine whether
firms that win government procurement contracts grow more compared to firms that
compete for these contracts but do not win. We assemble a comprehensive data set
combining matched employer-employee data for the universe of formal firms in Brazil
with the universe of federal government procurement contracts over the period of
2004 to 2010. Exploiting a quasi-experimental design, we find that winning at least
one contract in a given quarter increases firm growth by 2.2 percentage points over
that quarter, with 93% of the new hires coming from either unemployment or the informal
sector. These effects also persist well beyond the length of the contracts. Part
of this persistence comes from firms participating and wining more future auctions, as
well as penetrating other markets