government and private purchases separately using the TiVA data, we confirm the finding that countries with more protectionist procurement laws import less in both public and private markets.

To address some of the potential biases in our cross-country analysis, we adopt a second empirical approach based on a gravity equation for bilateral flows in government procurement, similar to Mulabdic and Rotunno (2022). This approach accounts for standard bilateral determinants of trade costs, such as distance, contiguity, and colonial history, as well as time-varying fixed effects specific to the exporters and to the importers, which absorb the influence of multilateral resistance terms and other country-specific determinants of trade (Head and Mayer 2014). We identify the impact of our country-level measures of protectionism on bilateral imports by interacting them with an indicator for domestic trade. Specifically, we examine whether protectionist measures lead governments, firms and households to buy relatively more from domestic suppliers than from foreign ones – an effect on the so-called “border effect” in gravity models (McCallum 1995).

The gravity estimates confirm the suggestive evidence from the cross-country regressions. The interaction coefficient is positive indicating that the difference between domestic and international trade is larger in countries with protectionist procurement laws. This result is driven by the presence of preferential treatment provisions. For countries that give preferential treatment to domestic bidders, the estimates suggest that domestic purchases are around 16 times bigger on average than international ones, whereas for importers without a preferential treatment clause, domestic purchases are 7 times bigger than international ones.

Industry-level results suggest that the negative relationship between trade and protectionism in government procurement affects industries differently. The correlation is more precisely estimated in the primary and manufacturing sectors than in the services. Using data from the international input-output tables from TiVA, we further find that the negative association between trade and protectionism in government procurement concerns public and private purchases in qualitatively similar ways. This finding corroborates our initial hypothesis that protectionism in government procurement can extend beyond the conduct of procurement auctions and affect the sourcing decisions of private firms as well (notably, the domestic ones who are awarded procurement contracts).

The rest of the paper is organized as follows. Section II scopes out the existing literature on trade policy and government procurement. Section III describes the construction of the indicators of protectionism based on national laws on government procurement, and the trade data. We then present in Section IV the results from the cross-country regressions and from the estimations of the gravity model, both investigating the relationship between protectionism in the law and trade openness. Section V concludes by summarizing the evidence and outlining limitations and policy implications.

# II. Literature review

This paper examines the importance of protectionist rules in government procurement across countries and assesses their impact on cross-border flows, drawing on insights from different 3