Research Seminar – Procuring Low Growth: The Impact of Political Favoritism on Public Procurement and Firm Performance in Bulgaria

The Growth Lab’s Research Seminar series is a weekly seminar that brings together researchers from across the academic spectrum who share an interest in growth and development.

Speaker: Mihaly Fazekas. Associate Professor, Central European University

Whether attending in person or virtually, please register in advance.

Authors: Mihaly Fazekas, Viktoriia Poltoratskaya, Marc Schiffbauer, and Bence Tóth

Paper Abstract: This paper assesses the impact of favoritism in public procurement on private sector productivity growth. To this end, it combines three novel microeconomic datasets: administrative data on firms including over 4 million firm-year observations and rich financial and ownership information, public procurement transactions data for 150,000 published contracts and their tenders, and a newly assembled dataset on firms’ political connections drawing on asset declarations, sanction lists, and offshore leaks. This comprehensive dataset allows us to trace the impact of favoritism in allocating government contracts to economic growth. Specifically, we find that politically connected firms are 18-32 percent more likely to win public procurement contracts due to their preferential access to uncompetitive tenders. Public procurement results in higher subsequent productivity and employment growth only if it has been awarded through competitive tenders. Firms winning contracts through uncompetitive procedures have flat growth but make higher profit margins. Consistent with these findings, we show that firms awarded uncompetitive public procurement contracts obtain rents from overpaid contracts, by 9-11 percent. The results suggest that aggregate annual TFP growth would have been 8 percent higher in the absence of favoritism in public procurement.

Speaker Bio: Mihaly Fazekas is an associate professor at the Central European University, Department of Public Policy, with a focus on using data science methods to understand the quality of government globally. He is also the scientific director of an innovative think-tank, the Government Transparency Institute. He has a PhD from the University of Cambridge where he pioneered data science methods to measure and understand high-level corruption in Central- and Eastern Europe. His research and policy interests revolve around corruption, favouritism, private sector collusion, and government spending efficiency. Methodologically, he has experience in both quantitative and qualitative methods in diverse fields such as public policy, data science, and political science. He worked at the University of Cambridge as the scientific coordinator of the Horizon 2020 funded project DIGIWHIST which used data science approaches to measuring corruption risks, administrative capacity, and transparency in public procurement in 33 European countries. His articles appeared in diverse, high-quality journals such as the American Journal of Political Science, Journal of Public Administration Research and Theory, Governance, Regional Studies, World Development, Transportation Research Part A: Policy and Practice, the Lancet, or International Journal of Data Science and Analytics. His policy reports have been published by prestigious organisations such as the World Bank, the OECD, or the European Commission. He regularly consults the European Commission, United Nations, OECD, World Bank, and a range of national governments and NGOs across the globe. In 2020, he has won the IMF’s Anti-Corruption Challenge leading an interdisciplinary team from across government and academia.