Abstract
The total funding envelope for World Bank projects is often divided among various state and non-state actors, each of which can have competing ideas about or interests in the project. How does the division of financing relate to overall project effectiveness? I argue that too many funding streams in a project can reduce project effectiveness by creating delays, increasing transaction costs, and blurring lines of accountability. I combine original data on the number and concentration of financial collaborators in World Bank projects with the World Bank’s ratings of project performance, looking at within-country variation across projects to explore whether or not there is evidence of reduced aid effectiveness in projects with more participants. The results suggest that projects with significant cofinancing receive somewhat worse project ratings.
Highlights
Major foreign-financed development projects often involve cooperation on the part of multiple actors
By “World Bank project,” I refer to investment projects financed by the World Bank’s two main lending arms, the International Bank for Reconstruction and Development (IBRD), which lends at near-market rates to middle-income countries, and the International Development Association (IDA), which provides concessional loans or grants to the world’s poorest countries
According to the results in columns (1) and (5), the within-country variation in whether or not World Bank projects involve cofinancing is such that the presence of any non-World Bank funding in a project negatively predicts project outcome ratings
Summary
Major foreign-financed development projects often involve cooperation on the part of multiple actors. Having more actors cooperating in a single development project increases transaction costs, increases the likelihood of implementation delays, and reduces the clarity of lines of accountability within a project. Each of these problems risks undermining development impact. I find that the presence of multiple financers correlates with slight decreases in the likelihood of a project receiving a satisfactory rating. Other patterns related to particular types of cofinancers are less robust
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