Public Procurement Auctions and Macroeconomic Conditions

Abstract

This paper investigates effects of macroeconomic conditions in an economy on government procurement (GP) auctions. Specifically, two research questions are examined: 1) What are the effects of macroeconomic variables on the competitive environment (number of bidders) in GP auctions? 2) How does the procurement price (winning bid in GP auctions) respond to changes in macroeconomic variables? We use a unique and extensive data set provided by the Public Procurement Authority (PPA) of Turkey that covers all government procurement auctions for the years 2004-2009. We analyze 357455 first-price GP auctions. We have two major results. First, number of bidders are significantly affected by inflation, industrial production and unemployment rate. All macroeconomic variables have negative effects. Second, after controlling for possible endogeneity, we show that inflation and industrial production significantly and positively affects the procurement price. Unemployment rate does not have an effect on the procurement price. The empirical results presented in the paper can be used by policy makers to design efficient government procurement mechanisms under different macroeconomic conditions.