Do procurement agreements increase partners' trade?

Since 1990, the United States has signed agreements with more than forty partner nations granting national treatment to foreign firms in government procurement auctions on a reciprocal basis. In the absence of such an agreement, the U.S. inflates foreign bids by a minimum of 6 percent before comparing them to domestic bids. Winners are paid their bid, without inflation. I construct a theoretical framework to model the competitive behavior of bidders in this environment. From this framework I derive a gravity-type model to predict bilateral trade flows in the face of foreign discrimination. The key research question is whether agreements signed by the United States do indeed grant parity to partners' firms. Using data from the U.S. Federal Procurement Data System, I test whether these agreements have produced a measurable increase in signatories' market access. Results indicate that national treatment agreements increase both the total value and number of contracts a partner may expect to win. Worldwide, number of contracts have risen by 315 percent and total revenues by 98 percent. Increases in procurement specifically subject to treaty provisions amount to 174 percent by number of contracts and 251 percent by value. Increases are distributed such that partners' firms concentrate their gains in high-valued contracts, suggesting a role for fixed costs. Overall, national treatment agreements boost the typical partner's income by between $25 and $45 million annually. For partners in the top quartile by trade value, the rise in firms' total revenue is on the order of $340 million a year. However, evidence suggests that these gains may come from trade diversion.