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Does federal contracting spur development? Federal contracts, income, output, and jobs in US cities

Rodríguez-Pose, Andrés and Gerritse, Michiel (2018) Does federal contracting spur development? Federal contracts, income, output, and jobs in US cities. Journal of Urban Economics, 107. pp. 121-135. ISSN 0094-1190

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Identification Number: 10.1016/j.jue.2018.07.002

Abstract

Firms and governments alike frequently court federal government contracts to generate more jobs and trigger economic growth. However, the employment and output impact of government contracts remains controversial. We use georeferenced data on United States (US) federal contracts, distinguishing between the location of the recipient and the location of the activity, for the years 2005-2014 in order to assess the employment and output impacts of federal contracting in metropolitan areas of the US. We resort to a shift-share instrument and precise location-specific fixed effects to estimate the causal impact of spending. Cities that receive more contract expenditure witness an expansion in output – with contracts generating $1.4 per dollar spent – but experience only modest increases in employment. The impact is also constrained geographically and short-lived. The results suggest that, on average, the effects of federal contracting on local economies are modest, meaning that attracting federal contracts may not be an effective urban development strategy.

Item Type: Article
Official URL: https://www.sciencedirect.com/journal/journal-of-u...
Additional Information: © 2018 Elsevier Inc.
Divisions: Geography & Environment
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HJ Public Finance
JEL classification: E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy Formation, Macroeconomic Aspects of Public Finance, Macroeconomic Policy, and General Outlook > E62 - Fiscal Policy; Public Expenditures, Investment, and Finance; Taxation
O - Economic Development, Technological Change, and Growth > O2 - Development Planning and Policy > O23 - Fiscal and Monetary Policy in Development
R - Urban, Rural, and Regional Economics > R1 - General Regional Economics > R11 - Regional Economic Activity: Growth, Development, and Changes
R - Urban, Rural, and Regional Economics > R3 - Production Analysis and Firm Location > R38 - Government Policies; Regulatory Policies
R - Urban, Rural, and Regional Economics > R5 - Regional Government Analysis > R58 - Regional Development Policy
Sets: Departments > Geography and Environment
Collections > Economists Online
Date Deposited: 28 Aug 2018 15:15
Last Modified: 11 Aug 2019 23:00
URI: http://eprints.lse.ac.uk/id/eprint/90154

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