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Government procurement—the process in which public entities buy goods and services from private companies—represents between 5% and 20% of a country’s GDP, depending on the country. Public procurement policies allow governments to strategically support certain firms and sectors, for example, small businesses or eco-friendly products. In using public procurement systems, policymakers must navigate a trade-off: Procuring from targeted firms can alleviate economic distortions, but it can also result in higher costs if more expensive suppliers are chosen. Success depends on the specific context and the productivity differences between the targeted firms and other suppliers, highlighting the importance of careful evaluations of potential impacts.

Author: Manuel García-Santana