Effectiveness of public procurement in stimulating innovation in small and medium-sized enterprises (SMEs)

A recent resurgence of demand-side innovation policy and, in particular, public procurement of innovation, has reignited the interest of policy makers as well as policy evaluators across the EU. While most evidence on its effectiveness are based on case studies, quantitative studies are scarce, especially for small and medium-sized enterprises (SMEs). We utilize the Innobarometer 2015 survey to estimate direct effects from public procurement of innovation and indirect effects from regular public procurement on innovation outputs in all firm size categories (micro, small, medium and large firms). Overall results suggest positive policy effects on product innovation in services and innovative sales. These results are broadly consistent across SME firm size categories and for both direct and indirect effects. In contrast, we found little evidence of policy effects among large firms. Based on empirical findings, our study offers policy implications in relation to facilitating innovation in SMEs using public procurement as a policy instrument.