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Infrastructure is the engine for economic growth. The international donor community has spent about 70-100 billion U.S. dollars on infrastructure development in developing countries every year. However, it is arguable whether these financial resources are used efficiently. Without doubt a key is competition in public procurement systems. We analyze procurement data from multi-and bi-lateral official development assistance in three main infrastructure sectors: roads, electricity, and water and sanitation. It is found that the competition effect is underutilized in some areas. To take full advantage of competition, at least seven bidders are needed in the road and water sectors, while three may be enough in the power sector. It is also shown that not only competition but also auction design, especially lot division, is crucial for containing procurement costs. Based on the estimated efficient unit cost of infrastructure procurement, the annual financial needs are estimated at approximately 370 billion U.S. dollars. By promoting competition, the developing world might be able to save at most 7.6 percent of total infrastructure development costs.

Auctions, which are applicable to aid-related procurement systems, have been recently recognized as an important tool for improving economic efficiency. Using data on procurement auctions for Japanese official development assistance projects, the equilibrium bid function is estimated. The data reveals that a 1% increase in the number of bidders decreases the equilibrium bid by about 0.2%. This implies that strengthening competition at procurement auctions lowers contract prices and mitigates the heavy indebtedness of developing countries. Auctions are also instrumental in fostering local business environment and governance. For intensifying bidding competition, it is useful to introduce an electronic bidding system, encourage local firms to jointly bid, and relax excessive qualification requirements. Copyright Springer 2006competition effects, official development assistance, procurement auctions, C31, D44, H57, L31,

This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.Botswana is typical of the countries that are endowed with abundant natural resources. Although it is commonly accepted that resource-rich economies tend to fail in accelerating growth, Botswana has experienced the most remarkable economic performance in the region. Using the latest cross-country data, this study empirically readdresses the question of whether resource abundance can contribute to growth. It finds that governance determines the extent to which the growth effects of resource wealth can materialize. In developing countries in particular, the quality of regulation, such as the predictability of changes of regulations, and anticorruption policies, such as transparency and accountability in the public sector, are most important for effective natural resource management and growth.