Bureaucratic Capacity and Political Favoritism in Public Procurement

Abstract

Government contracts are a huge business and, in many countries, are associated with considerable corruption. Much research emphasizes bureaucratic improvements as a means to reduce corruption. This paper draws a sharp distinction between the extent to which a bureaucracy is politically controlled and its technical capacity. In it, I argue that in politically controlled bureaucracies, stronger technical capacity facilitates corruption. In such contexts, more capable bureaucrats utilize their skills to shield favored firms from competition using complex strategies that minimize the risk of detection. I test the argument on a novel dataset of 54,623 municipal contracts in Guatemala awarded between 2013 and 2019 and 21,631 firm-politician ties. I find that more capable bureaucracies increase the likelihood of well-connected firms winning contracts through less competitive processes. This paper delivers important policy lessons, an original, widely applicable, measure of political networks and new insights into the sources of corruption.