Political Firms, Public Procurement and the Democratization Process

Abstract: Using data covering all the public procurement transactions in Paraguay from 2004 to 2011 and the political connections of the 700 largest public providers, the paper documents how the amount of contracts received by firms of different colors evolved during and after a landmark political change that occurred in 2008, when an opposition coalition defeated the Colorado party, in power for 61 years, including 35 years of the longest standing dictatorship in South America (1954-1989). It then shows that there were efficiency gains in the process, mostly in the forms of institutions using bigger and more competitive contracts, but that this evolution was constrained by the lack of entrepreneurs able to step in to replace firms connected to the previous regime.