Achat Public et Capture de Rentes - Le Cas du Paraguay. – RENTSEP

The objective of the present project is to analyze the channels of rent-seeking and its impact on economic development by combining original theoretical work, using the tools from industrial organization and contract theory, and systematic micro-level empirical evidence (the first of this type and scale), based on a unique database consisting of over 50,000 public procurement operations in Paraguay, covering the period 2004 to 2007 (i.e. panel over 4 years, with a view to extend it to more recent years). Its aim is to study the channels of rent seeking through procurement operations, providing strong micro-foundations for the country observed macroeconomic stylized facts, and helping understanding the mechanisms through which rent-seeking and corruption have, in the last 20 years, produced a dismal industrial sector, and a sluggish growth rate in this country. The project will also offer new insights on the 'natural resources curse'. Indeed, the rents generated by hydro-electric power free the government from the need to tax firms. Since it gets a steady flow of revenue from the dams, having a healthy industrial sector is no longer necessary, an effect different from standard macro-economic result such as the Dutch disease. Beyond the case of Paraguay, the project also aims at reaching conclusions relevant more generally for developing countries and at producing policy insights on the organization of procurement rules and government institutions to limit the impact of rent-seeking.