5 5 relative to purchases by firms and households, and highlight significant positive effects of PTAs on cross-border procurement, especially in services. Moreover, they identify that policies that are “multilateral” promote cross-border procurement the most, and EU membership has the largest effect on trade in government procurement.<sup>2</sup> Given that our empirical analysis focuses on domestic laws that apply equally to foreign firms from different countries, we draw on a similar gravity structural model as Mulabdic and Rotunno (2022), but consider the effects on total trade (in government procurement and private purchases).

A few studies have mobilized “micro” contract-level data to investigate the issue of home bias in government procurement. This work is normally on single countries or regions (e.g., the US, the EU, Norway and the Republic of Korea), and identifies cross-border procurement as contracts awarded to firms located abroad (or to a different region when home bias is defined locally).<sup>3</sup> Overall, the micro studies confirm the evidence from cross-country macro data. Using EU data and gravity-style estimation approach, Herz and Varela-Irimia (2020) find that government authorities award disproportionally more to firms located within their countries and their region. García-Santana and Santamaría (2021) confirm this result in a subsample of French and Spanish procurement contracts, and show that the public home-bias is driven by sub-national authorities.<sup>4</sup> A related strand of the literature highlights the impact of winning government contracts on firms’ outcomes, thus stressing the economic relevance of government procurement. Lee (2021) and Ferraz, Finan, and Szerman (2015) find that winning a procurement contract increases long-term firm growth in employment, sales and value-added in Korea and Brazil, respectively. Furthermore, receiving procurement contract allows small and financiallyconstrained firms to acquire credit (di Giovanni et al. 2023), and increase investments (Hebous and Zimmermann 2021). The firm-level studies confirm how crucial the allocation of government contracts can be for productivity and economic efficiency.

> 2 One of the multilateral provisions with the strongest impact on cross-border procurement imposes the adoption of an e-procurement system. This evidence echoes the results of Lewis-Faupel et al. (2016), who find that regional governments with e-procurement systems in India and Indonesia are more likely to award contracts to firms from outside the region.

> 3 This standard definition of cross-border government procurement, which is consistent with the aggregated country-level approach, misses two other ways of exposure to foreign firms: (i) when the contract is awarded to the local subsidiary of a foreign firm; (ii) a foreign company indirectly participates in the execution of the contract by providing intermediate inputs to the domestic ‘winner’ (Cernat and Kutlina-Dimitrova 2016; 2020). Only (ii) could be measured in our “macro” approach using ICIO tables (see Riker (2013) for an application).

> 4 Taş et al. (2019) use contract-level data for members of the European Economic Area (EEA), Switzerland and Macedonia over the 2006-2016 to assess the role of WTO GPA. They find that the probability of awarding a contract to a foreign firm is significantly higher if the foreign firm is based in WTO GPA member country. They also provide suggestive evidence of a cost-reducing effect of the WTO GPA.

5