Abstract
I document a beneficial effect of the governmentâs participation in product markets. Exploiting the 2008â2009 financial crisis as a natural experiment, I show that federal procurement contracts insulated government contractorsâ performance from the crisis. By 2009, government contractors had 15% higher market capitalization, had 18% higher capital expenditures, and received 26% more bank credit than did similar firms. This stabilizing effect, in turn, spilled over into neighboring firms. An average amount of government purchases reduced local employment losses by 35% in retail industries and by 48% in industries supplying government contractors. Spillovers were particularly strong in high economic slack areas.Author has furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.
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