Public procurement – usually equivalent to 10-20% of countries’ GDP – is mostly associated with acquiring goods and services needed to deliver specific public services. The history has demonstrated, though, that public procurement can be deliberately and effectively employed to pursue also broad social goals such as economic development. In regard to public procurement as a vehicle for economic development, governments can use at least four different strategies: a) public procurement as a level playing field; b) discriminatory public procurement; c) public procurement for innovation; d) public procurement as industrial policy. But each of these strategies entails problems. For example, if countries used public procurement only for increasing cost-effectiveness through the creation of a level playing field, these countries would voluntarily give up on using one of the most powerful demand-side innovation policy tools to promote industrial development, competitiveness and economic growth. At the same time, employing public procurement for innovation and development assumes specific capacities, which many governments lack (e.g. conducting proper market intelligence, developing public technology platforms, managing risk, avoiding coordination failures etc.). The current academic debate has only recently started to discuss whether and how these shortcomings can be overcome, but similarly to the overall innovation systems debate, size-specific issues have so far received almost no attention. The current paper aims at bridging this gap by a) studying how the size-specific variables such as small markets, low diversification of the economic structure, lack of financial capabilities and human resources, low level of administrative capacity and vested interests influence public procurement for innovation and development and b) what could be the suitable strategy for small states to choose if public procurement was seen as a tool for development.
