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

Heinzel, M. , Cromier, B. and Reinsberg, B. (2023) Earmarked funding and the control–performance trade-off in international development organizations. International Organization, 77(2), pp. 475-495. (doi: 10.1017/S0020818323000085)

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 reduce 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 four other IDOs: the African Development Bank (AfDB), Asian Development Bank (ADB), Caribbean Development Bank (CDB), and International Fund for Agricultural Development (IFAD). Using data on the performance of 7,571 projects approved between 1990 and 2020, we find 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 to earmarked funds.

• Item Type: Articles
• Status: Published
• Refereed: Yes
• Glasgow Author(s) Enlighten ID: Reinsberg, Dr Bernhard and Heinzel, Dr Mirko
• Authors: Heinzel, M., Cromier, B., and Reinsberg, B.
• College/School: College of Social Sciences > School of Social and Political Sciences > Politics
• Journal Name: International Organization
• Publisher: Cambridge University Press
• ISSN: 0020-8183
• ISSN (Online): 1531-5088
• Published Online: 04 May 2023
• Copyright Holders: Copyright © The Author(s), 2023
• First Published: First published in International Organization 77(2):475-495
• Publisher Policy: Reproduced under a Creative Commons License
• Data DOI: 10.7910/DVN/W0FHQX

Project Code	Award No	Project Name	Principal Investigator	Funder's Name	Funder Ref	Lead Dept
311169		Earmarked funding and the effectiveness of international development organizations (EF-IO)	Bernhard Reinsberg	Medical Research Council (MRC)	MR/V022148/1	S&PS - Politics