Earmarked funding and the control-performance trade-off in international development organizations

Heinzel, Mirko and Cormier, Ben and Reinsberg, Bernhard (2023) Earmarked funding and the control-performance trade-off in international development organizations. International Organization, 77 (2). pp. 475-495. ISSN 1531-5088 (https://doi.org/10.1017/S0020818323000085)

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Abstract

Since the 1990s, the funding of multilateral development assistance has rapidly transformed. Donors increasingly constrain the discretion of international development organizations (IDOs) through earmarked funding, which limits the purposes for which a donor’s funds can be used. The consequences of this development for IDOs’ operational performance are insufficiently understood. We hypothesize that increases in administrative burdens due to earmarked funding negatively affect the performance of IDO projects. The additional reporting required of IDOs by earmarked funds, while designed to enhance accountability, ultimately increases IDOs’ supervision costs and weakens their performance. We first test these hypotheses with data on project costs and performance of World Bank projects using both ordinary-least-squares and instrumental-variable analyses. We then probe the generalizability of those findings to other organizations by extending our analysis to evaluations of four additional IDOs (AfDB, ADB, CDB, IFAD). Our empirical analysis relies on data on the performance of 7,571 projects approved between 1990 and 2020 and shows that earmarked funding undermines both cost-effectiveness and project performance across IDOs. Donors seeking value for money may consider allocating more money to core funds rather than earmarked funds.

ORCID iDs

Heinzel, Mirko, Cormier, Ben ORCID logoORCID: https://orcid.org/0000-0001-9278-5308 and Reinsberg, Bernhard;
CORE (COnnecting REpositories)