Governments’ Home Bias and Efficiency Losses: Evidence From National and Subnational Governments

• Authors: Manuel García-Santana and Marta Santamaría
• Journal of International Economics, Vol. 162, Article 104285, August 2026

Using one million procurement contracts awarded in France and Spain, we quantify the importance of home bias in explaining governments’ purchases. First, we exploit that “home” has a different meaning for subnational and national governments and identify their relative home bias by comparing how local and non-local establishments sell to national and subnational agencies within a region. Second, we exploit a reorganization of French regions, to estimate how “new local” establishments sell to governments after the reform. Using a quantitative trade model, we find that governments’ home bias increases local expenditures shares by 29% and reduces governments’ output by 8%.