My new working paper-July. 18th

The Effects of Demand Shocks on the Growth of Small firms

In this paper I estimate the causal effects of demand shocks on the growth of small firms. I use data from several new sources and, as identification strategy, exploit a governmental procurement process that allocates public contracts through a randomized contest. I find that demand shocks have a positive and significant impact on short-term measures of growth and no impact on long-term measures. On average, an increase in demand of 10% will increase wage expense by 2% and current assets by 5% during the year of the shock. Firms that won during consecutive years show an increase in their levels of fixed assets. Available here