OECD expert workshop on the measurement of public procurement of innovation. "What administrative databases reveal about the innovation impact of public procurement: Evidence from

What administrative databases reveal about theinnovation impact of public procurement:

Evidence from the US*

Simon Wiederhold

Ifo Institute Munich

Workshop on the Measurement of Procurement of Innovation4 February 2013, OECD Headquarters (Paris)

*Presentation is based on a revised version of the paper:“Technological Intensity of Government Demand and Innovation,”

Ifo Working Paper No. 135, 2012 (with Viktor Slavtchev)

1 of 22 Wiederhold Innovation impact of procurement in the US

A First Look at the Data

Federal Procurement Data System—Next Generation

All federal procurement contracts above the micropurchase threshold($2,500; before 2004: $25,000)

I More than 98% of all federal procurement actions (in terms of value)

Available since 1978Detailed information on various contract characteristics:

I Contract value (action obligations and de-obligations)I Award and completion datesI Place of performanceI Whether or not a contract is primarily for R&DI NAICS-classified industry to which a contract can be assignedI Awarding ministryI Company-level information

Procurements by non-federal public entities are not included in thedata





Available since 1978

Detailed information on various contract characteristics:I Contract value (action obligations and de-obligations)I Award and completion datesI Place of performanceI Whether or not a contract is primarily for R&DI NAICS-classified industry to which a contract can be assignedI Awarding ministryI Company-level information

















Total Procurement

1

1.5

2

2.5

3

%

0

100

200

300

400

Bill

ion

$, r

eal

1982 1986 1990 1994 1998 2002 2006 2010

Year

Absolute value (left axis) % GDP (right axis)

Source: FPDS−NG, BEA


Total vs. R&D Procurement

010

020

030

040

0

Bill

ion

$, r

eal

1982 1986 1990 1994 1998 2002 2006 2010

Year

Total procurement R&D procurement

Source: FPDS−NG

R&D procurement: Firms conduct R&D by the order of thegovernment


Total vs. High-Tech Procurement

010

020

030

040

0

Bill

ion

$, r

eal

1982 1986 1990 1994 1998 2002 2006 2010

Year

Total procurement Procurement in high−tech industries

Source: FPDS−NG

High-Tech Procurement: Procurement contracts for high-tech goodsand services (e.g., biotechnology, aerospace, telecommunication)


Total vs. Defense Procurement

010

020

030

040

0

Bill

ion

$, r

eal

1982 1986 1990 1994 1998 2002 2006 2010

Year

Total procurement DoD procurement

Source: FPDS−NG

Defense Procurement: Procurement contracts awarded by theDepartment of Defense


Share Competitive Procurement

40%

50%

60%

70%

1982 1986 1990 1994 1998 2002 2006 2010

YearSource: FPDS−NG

Competitive Procurement: Procurement contracts awarded in acompetition


Motivation

MotivationPublic procurement as an innovation policy tool

I EU: Lisbon Strategy (Edler and Georghiou, 2007)I Germany: High-Tech Strategy (Meyer-Krahmer, 2007)I Demand-side policies outside Europe in Australia, Brazil, China, and

South Korea (OECD, 2011)

In previous econometric studies on the innovation effects ofgovernment demand...

I ...procurement spending was either not observable (Aschhoff andSofka, 2009), or

I ...only a specific sub-sample of awarding authorities (Draca, 2012) orcontractors (Lichtenberg, 1988) was considered

Types of products and services purchased by the government were notaddressed, but there is evidence that:

I Public demand is unevenly distributed across industries (Nekarda andRamey, 2011)

I Government is an important customer of technologically advancedproducts (Cozzi and Impullitti, 2010)




South Korea (OECD, 2011)In previous econometric studies on the innovation effects ofgovernment demand...









South Korea (OECD, 2011)In previous econometric studies on the innovation effects ofgovernment demand...







Technological Intensity of Public ProcurementHart (1998, p. 1):

“[Public] R&D spending was typically accompanied by other measuresthat deserve at least as much credit for their technological payoffs. Forinstance, the Department of Defense (DOD) not only funded much ofthe physical science and engineering R&D that led to advances insemiconductors and computers, it also purchased a large fraction ofproducts themselves, especially the most advanced products. The DODguaranteed that a market for electronics would exist, inducing privateinvestment on a scale that would not have otherwise followed even themost promising research results.”

Shifts in the composition of government spending towardinnovation-intensive goods may stimulate private R&DEmpirical approximation of the technological content of procurement:High-Tech Share

I Procurement in high-tech industries as a share of total procurement inthe private sector




Shifts in the composition of government spending towardinnovation-intensive goods may stimulate private R&D

Empirical approximation of the technological content of procurement:High-Tech Share





Shifts in the composition of government spending towardinnovation-intensive goods may stimulate private R&DEmpirical approximation of the technological content of procurement:High-Tech Share



Data

Data

Empirical analysis at the level of the US states in the period1999–2009

Public procurementI Data source: Federal Procurement Data System—Next GenerationI About 21.5 million individual contracts, aggregated to the state levelI Only non-R&D contracts with private-sector firms considered to

construct the procurement high-tech share

Privately funded company R&D expendituresI Data source: National Science Foundation R&D Survey


Data

Empirical analysis at the level of the US states in the period1999–2009Public procurement

I Data source: Federal Procurement Data System—Next GenerationI About 21.5 million individual contracts, aggregated to the state levelI Only non-R&D contracts with private-sector firms considered to




Data

Empirical analysis at the level of the US states in the period1999–2009Public procurement

I Data source: Federal Procurement Data System—Next GenerationI About 21.5 million individual contracts, aggregated to the state levelI Only non-R&D contracts with private-sector firms considered to




Results

Pooled Cross Section

24

68

10C

ompa

ny R

&D

(lo

g)

0 1 2 3 4 5High−tech share (log, t−1)


Regression ResultsDependent Variable:Company R&D (log)

(1) (2) (3) (4)

High-Tech Share (log, t-1) 0.092∗∗

(0.040)Total Procurement (log, t-1) -0.021

(0.048)Non-R&D Procurement (log, t-1) -0.017

(0.048)R&D Procurement (log, t-1) -0.011

(0.038)

Total Market Size Yes Yes Yes YesState Fixed Effects Yes Yes Yes YesTime Fixed Effects Yes Yes Yes Yes

Observations 514 514 514 514R-squared (within state) 0.155 0.137 0.135 0.132F -statistic 10.050 6.810 6.850 7.250

Notes: Standard errors (in parentheses) clustered by state. Significance levels: * p<0.10, ** p<0.05, *** p<0.01.16 of 22 Wiederhold Innovation impact of procurement in the US


(1) (2) (3) (4)





(0.038)





(1) (2) (3) (4)





(0.038)





(1) (2) (3) (4)





(0.038)




Conclusions

Conclusions

Main resultsI Private-sector R&D employment is responsive to shifts in the

technological content of public procurementI Government purchases as a de facto innovation policy tool

Policy implicationsI Policymakers should not be agnostic about the inter-industry

composition of their purchasesI Not only through support programs (e.g., R&D grants, tax credits) a

government can influence private-sector innovation activities

However...I Pursuing secondary objectives distorts government demandI No comparison with other innovation policy toolsI Lessons for Europe?


Conclusions








Conclusions








Thank you very muchfor your attention!

Backups

Total Procurement by State

02468

0.51

1.52

0

5

10

0

.5

1

010203040

0

2

4

6

0

5

10

0

.2

.4

0

5

10

15

0

5

10

0.51

1.52

0.51

1.52

2468

0

2

4

6

0

.5

1

1.5

0

1

2

3

0

2

4

6

0

2

4

6

0.51

1.52

.1

.2

.3

.4

.5

.2

.4

.6

.8

0.51

1.52

0

.5

1

1.5

2

4

6

2468

2468

10

01234

.1

.2

.3

.4

.5

23456

0

2

0

.5

1

1.5

0

5

10

15

2468

10

0

2

4

6

.51

1.52

2.5

0

2

4

6

2468

10

0

5

10

15

0

.5

1

1.5

0

2

4

6

0

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0

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0

50

0

2

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0.2.4.6

010203040

2468

0

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01234

0

.1

.2

.3

1982 1986 1990 1994 1998 2002 2006 2010 1982 1986 1990 1994 1998 2002 2006 2010 1982 1986 1990 1994 1998 2002 2006 2010 1982 1986 1990 1994 1998 2002 2006 2010 1982 1986 1990 1994 1998 2002 2006 2010

AL AK AZ AR CA

CO CT DE FL GA

HI ID IL IN IA

KS KY LA ME MT

NE NV NH NJ NM

NY NC ND OH OK

OR MD MA MI MN

MS MO PA RI SC

SD TN TX UT VT

VA WA WV WI WY

Source: FPDS−NG

Billion $, real

Procurement and Company-Sponsored R&D

100

150

200

250

300

350

Bill

ion

$, r

eal

2000 2005 2010

Year

Total procurement Company R&D

Source: FPDS−NG, NSF

High-Tech Industries (BLS, 2005)

4-digit NAICS code NAICS title

3254 Pharmaceutical and medicine manufacturing

3341 Computer and peripheral equipment manufacturing

3342 Communications equipment manufacturing

3344 Semiconductor and other electronic component manufacturing

3345 Navigational, measuring, electromedical, and control instruments manufacturing

3364 Aerospace product and parts manufacturing

5512 Software publishers

5161 Internet publishing and broadcasting

5179 Other telecommunications

5181 Internet service providers and Web search portals

5182 Data processing, hosting, and related services

5413 Architectural, engineering, and related services

5415 Computer systems design and related services

5417 Scientific research-and-development services

Empirical Strategy

Main theoretical resultI Increase in the technological content of public demand stimulates

private-sector R&D at the aggregate level through a market-size effect

Estimation equationlogRDi t = β1 logHIGH−TECH−SHAREi t−1

+β2 logMARKET−SIZEi t−1 +X′i t−1θ

+ξi +νt +ui t,

RD : Company R&D expendituresHIGH−TECH−SHARE : Procurement high-tech/procurement totalMARKET−SIZE : Total market sizeX : Further controlsξ : State fixed effectsν : Time fixed effectsu : Error term

Descriptive Statistics

Mean Std. Dev. Min Max

Privately funded R&D expenditures (billions $2000) 3.710 6.623 0.019 49.661

Federal non-R&D procurement in high-tech industries (billions $2000) 1.662 2.822 0.003 17.708

Federal non-R&D procurement in all other industries (billions $2000) 2.309 2.890 0.042 25.894

High-tech procurement share (%) 32.944 19.930 1.520 84.563

GDP (billions $2000) 212.649 254.943 16.714 1,593.577

Population (millions) 5.852 6.425 0.492 36.962

Notes: This table shows the descriptive statistics for the main variables used in the empirical analysis for 50 US states in theperiod 1999–2009. The number of observations on privately funded R&D expenditures is 514; 36 observations are missingbecause of disclosure limitations. All other figures are based on 550 observations. High-tech procurement share is federalnon-R&D procurement in high-tech industries as a share of total federal non-R&D procurement in the private sector. Allmonetary values are expressed in constant dollars with the base year 2000.

Robustness

Potential spurious correlation between the procurement high-techshare and private-sector R&D

I Detailed industry-level GDP

Further controlsI R&D procurementI R&D subsidiesI Firms’ lobbying spending

Measurement of the variablesI Procurement: Net procurement values (gross value less deobligations)

to construct the procurement high-tech share

Different outcome variablesI R&D intensityI R&D employment

Instrumental variable estimation

Government & Nonprofit

OECD expert workshop on the measurement of public procurement of innovation. "What administrative databases reveal about the innovation impact of public procurement: Evidence from