Abstract
This paper contributes to the literature on the role of public procurement in encouraging innovations in the economy by empirically examining how the inverted-U relationship between competition and innovation is related to SME behavior in public procurement. First, we establish the inverted-U relationship in our data. We find that ‘intra-provincial suppliers’ (SMEs supplying mainly to public sector customers in their own municipality and province) are less innovation-oriented than ‘supra-provincial suppliers’ (supplying mainly to public sector customers residing outside their own province). In addition, a descriptive analysis suggests that the innovativeness of intra-provincial suppliers exhibits a weakly positive relationship with competition. However, the innovativeness of supra-provincial suppliers appears to be negatively related to competition at high levels of competition, but not at low levels of competition.
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