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Chapter 5 Liberalization of Government Procurements: Competition from Foreign Firms

In: Globalization and Emerging Issues in Trade Theory and Policy

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  • Ngo Van Long

Abstract

Purpose – In this chapter we study the welfare effects of relaxing government restrictions on bidding by foreign firms for government procurement contracts. Methodology – We use a modified version of the Tullock model of rent contests. Firms spend resources to influence decisions of awarding contracts. We consider the case where firms are heterogeneous in terms of lobbying effectiveness. Findings – The opening of the bidding opportunities to foreign firms can, under certain conditions, improve social welfare of the liberalizing country. The gain partly comes from reduced aggregate domestic lobbying efforts, which implies lower social waste, and partly from tax revenue on the profits of winning foreign firms. Practical implications – Our analysis indicates that when negotiating on opening up trade in services, governments should take into account the effects of foreign entry on domestic lobbying costs.

Suggested Citation

  • Ngo Van Long, 2008. "Chapter 5 Liberalization of Government Procurements: Competition from Foreign Firms," Frontiers of Economics and Globalization, in: Globalization and Emerging Issues in Trade Theory and Policy, pages 57-73, Emerald Group Publishing Limited.
    • Handle: RePEc:eme:fegzzz:s1574-8715(08)05005-7
    DOI: 10.1016/S1574-8715(08)05005-7
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    Keywords

    Trade liberalization; Research paper;

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