average share of procurement awarded to foreign firms would increase by a factor of 50, reaching a value of around 15.34%.

There are two reasons why the impact of subnational governments on procurement trade flows across countries is so much larger. First, subnational governments account for more than 80% of total procurement expenditure. Second, our estimates suggest that subnational governments impose a fixed entry cost to foreign firms around 80% higher than the one set by national governments.

**Concerns and limitations.** Our methodology is subject to several potential concerns and limitations. For our strategy to be valid, we need to assume that the above-mentioned natural frictions that reduce trade in procurement are constant within an origin-destination across government types. However, it is possible that agencies belonging to national and subnational governments have different levels of information, which could explain why local shares are lower in national governments. For example, public officials working in a national government agency in Barcelona may share information with their colleagues in Madrid and have more information about potential suppliers outside Catalonia than public officials from a subnational agency in Barcelona. This type of information asymmetry across government types would violate our identification assumption that natural frictions (information frictions in this case) vary at the origin-destination level but not across government types. In particular, our estimates of the subnational governments’ home bias would be upward-biased.

We believe that our framework, combined with several robustness checks, minimizes the extent of this concern. First, our data consists of contracts published in the Tenders Electronic Daily (TED) journal of the European Commission, which ensures that procurement projects are publicly advertised, and firms from anywhere in Europe should easily be able to learn about the projects and compete for them. This publicity obligation applies to contracts above a given monetary threshold that should be attractive to both domestic and foreign firms. Second, our identification of the intensive margin parameter exploits variation within firms that already sell to both government levels in their home region and outside. Therefore, it implies that at least one agency within each government level out of the home region already has a sourcing relationship with the firm. And third, for a subsample of projects for which we have information on all the firms bidding, we show that subnational governments systematically award the contracts to local firms even when firms from other regions with similar productivity compete for the same project.

Another potential concern is that the granularity of our data is not narrow enough to make sure that we are comparing similar contracts awarded by the two government levels, both in terms of size and the good or service procured. To deal with this issue, we show that our results are robust to cutting the data in many alternative ways. For example, we show that our baseline results hold when controlling for 4-digit sectors or when carrying out the analysis within extremely homogenous goods, e.g., printing paper.

Lastly, one could be concerned that our results are driven by national and subnational governments using different purchasing strategies when procuring goods, works, or services. For example, given the centralized structure of national governments in Spain and France, it could be possible 6