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Political Firms, Public Procurement, and the Democratization Process

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  • Straub, Stéphane
Abstract
In 2008, an opposition coalition defeated the Paraguayan Colorado Party, which had been in power for 61 years, including 35 years of the longest dictatorship in South America. Using data of all the public procurement transactions from 2004 through 2011 and the political connections of the 700 largest public providers, this paper documents how the volume of contracts received by connected firms evolved after this landmark political change. It shows that firms connected with the first ring of power were punished and that there were efficiency gains, mostly in the form of institutions shifting to bigger and more competitive contracts, but that these gains were constrained by the scarcity of entrepreneurs able to step in to replace firms connected to the previous regime. This demonstrates that the potential economic benefits of democratization are hampered by the perverse rent-seeking entrepreneurial incentives created by a long-term single-party authoritarian regime.

Suggested Citation

  • Straub, Stéphane, 2014. "Political Firms, Public Procurement, and the Democratization Process," TSE Working Papers 14-461, Toulouse School of Economics (TSE).
    • Handle: RePEc:tse:wpaper:27862
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    Cited by:

    1. Monica Martinez-Bravo & Leonard Wantchekon, 2021. "Political Economy and Structural Transformation: Democracy, Regulation and Public Investment," Working Papers wp2021_2110, CEMFI.
    2. Auriol, Emmanuelle & Straub, Stéphane & Flochel, Thomas, 2016. "Public Procurement and Rent-Seeking: The Case of Paraguay," World Development, Elsevier, vol. 77(C), pages 395-407.
    3. Gonzalez, Felipe & Miquel-Florensa, Josepa & Prem, Mounu & Straub, Stéphane, 2022. "The Dark Side of Infrastructure: Roads, Repression, and Land in Authoritarian Paraguay," SocArXiv zetmq, Center for Open Science.
    4. Cañete-Straub, Rumilda & Miquel-Florensa, Josepa & Straub, Stéphane & Van der Straeten, Karine, 2020. "Voting corrupt politicians out of office? Evidence from a survey experiment in Paraguay," Journal of Economic Behavior & Organization, Elsevier, vol. 179(C), pages 223-239.
    5. Fazekas,Mihály & Blum,Jurgen Rene, 2021. "Improving Public Procurement Outcomes : Review of Tools and the State of the Evidence Base," Policy Research Working Paper Series 9690, The World Bank.
    6. Havlik, Annika, 2020. "Political budget cycles in European public procurement," ZEW Discussion Papers 20-069, ZEW - Leibniz Centre for European Economic Research.
    7. Titl, Vitezslav & Geys, Benny, 2019. "Political donations and the allocation of public procurement contracts," European Economic Review, Elsevier, vol. 111(C), pages 443-458.
    8. Audinga Baltrunaite, 2020. "Political Contributions and Public Procurement: Evidence from Lithuania," Journal of the European Economic Association, European Economic Association, vol. 18(2), pages 541-582.
    9. Jan Palguta, 2015. "Political Rent-Seeking in Public Procurement: Evidence from the Entry of Political Challengers at Electoral Thresholds," CERGE-EI Working Papers wp549, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    10. Barbosa, Klenio & Straub, Stéphane, 2017. "The Value of Revolving Doors in Public Procurement," TSE Working Papers 17-873, Toulouse School of Economics (TSE), revised May 2020.
    11. Bernard Hoekman, 2015. "International Cooperation on Public Procurement Regulation," RSCAS Working Papers 2015/88, European University Institute.

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    More about this item

    Keywords

    Procurement; Political Connections; Rent-seeking; Democratization; Authoritarian regimes;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • O5 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies

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