The Effect of Public Procurement by Category on Innovation Output: A Fixed Effects Model using Driscoll and Kraay Standard Errors on Municipal Data in Portugal

Abstract

When the government and other public sector entities purchase works, goods or services, it is referred to as public procurement. Although there appears to be an increase in the study of public procurement, there is still a lot to discover that could aid policymakers in their economic decision-making-processes. This thesis adds to past studies by exploring the relationship between public procurement and innovation output at a municipal level in Portugal. A fixed effects model with Driscoll-Kraay standard errors was performed to research the innovation output. The final model suggests that the elasticity of innovation with respect to public procurement in services is negative, which can be explained through many zero or low-innovation outputs in the dataset. Furthermore, the work-related public procurement was shown to be negative but with positive marginal effects while also depending positively on population. Therefore, faster growing municipalities can spend less money on public procurement in works than municipalities that grow at a slower pace to reap the same innovation outcomes.