Government favoritism in public procurement : Evidence from Romania

Abstract: In Romania, the consideration that politicians use their influence to control the public procurement market is axiomatic. It is no surprise that the country ranks high in perceptionbased surveys or the low participation of firms on the procurement market. The more difficult task is to demonstrate the existence of restrictions to procurement contracts in order to benefit preferred companies. That is, to measure the extent to which the market is captured by favored companies. Employing data on all public procurement contracts in Romania for the period 2009 – 2015, this paper examines government favoritism in public procurement exerted by political parties. Using a dynamic panel data approach (Dávid-Barrett and Fazekas 2019), the companies are classified based on their winning pattern with respect to government change. Favoritism is observed if winning companies within the government period are also associated with a higher risk of corruption measured by two alternative approaches. The findings confirm that procurement market is captured in a low to moderate proportion (24%) and that the market display patterns of systematic favoritism. This may signal certain progress registered by Romania to combat political corruption. Arguably, the insensitivity of perception indicators with respect to this progress is, at least partly, due to media coverage of the on-going corruption investigations related to the past.