What determines earmarked funding to international development organizations? Evidence from the new multi-bi aid data

Abstract

Earmarked aid to international development organizations has quadrupled over the last two decades and now represents almost twenty percent of total aid. This paper introduces a new dataset on earmarked aid, which alternatively has been referred to as multi-bi, restricted, non-core or trust fund aid. The data makes it possible to track the rise of the new aid channel over an extended period of time and in greater detail regarding, e.g., the implementing multilateral organizations. The data include more than 100,000 earmarked projects of 23 OECD donors to 290 multilateral institutions from 1990 to 2012. We graphically illustrate the distribution and patterns of this new aid channel for all actors involved, namely donor governments and their aid-providing agencies, multilateral organizations, and recipient countries, and highlight promising avenues for further research. In a first empirical application of the data, we analyze donors' heterogeneous use of earmarked aid, and test three lines of argument for the provision of earmarked aid: official donor motives regarding specific recipient needs, public opinion in donor countries, and 'market-oriented' donor economies' use of earmarked aid to 'bypass' recipient countries with weak governance. We show that earmarked aid is associated with different donor-and recipient-level factors than traditional or 'pure' bilateral aid.

International organizations and development finance: Introduction to the special issue

“…Why have states and multilateral organizations shifted funding to this new financial modality and what effects has this modality had on development organizations and development outcomes? Eichenauer and Reinsberg (2017) show that, despite the claims of the governments that provide these trust funds, the cross-national allocation of these funds looks much more like bilateral aid than multilateral aid allocated by the same organizations. Further, states may use earmarked funds for a variety of self-interested purposes for which multilateral aid financed through core funding is not as useful.…”

“…The articles by Eichenauer and Reinsberg (2017) and Reinsberg (2017) analyze earmarked aid in general and Bpass-on funds,^which are a specific manifestation of earmarked aid, respectively. Both papers build upon an impressive new dataset that documents the four-fold increase over the past 20 years of a hybrid type of development finance.…”

“…Previous research (Lyne et al 2006;Hicks et al 2008;Bayram and Graham 2016) describes an increase in noncore funding to multilateral development organizations, but until the creation of this new database, many important research questions on the causes and the consequences of delegation to multilateral development organizations were not testable with systematic evidence. Eichenauer and Reinsberg (2017) show that this type of earmarked funding has increased steadily over time and that it now constitutes about 20% of all official development finance. Hence, the clear conceptual distinction between bilateral and multilateral aid described above has become empirically less clear over time.…”

“…BMulti-bi^development assistance is another increasingly important type of IO development finance that has surged in recent years (Eichenauer and Reinsberg 2017). For these mostly grant-funded projects, individual governments, or small groups of member governments, provide Bearmarked^financing to MDBs in the form of trust funds that are designed to address specific issues.…”

“…In this regard, the Eichenauer and Reinsberg (2017), McLean (2017), and Reinsberg (2017) contributions to this special issue represent important attempts to provide more complete and accurate data coverage of IO development finance flows and thus improve our collective understanding of the politics and the effects of such flows. However, IO scholars cannot afford to rest on their laurels; substantially more effort will be needed in the future to ensure that the most important questions about the causes and consequences of IO development finance are empirically tractable.…”