Multilateral Development Assistance Research Articles

Trust funds and the sub-national effectiveness of development aid: Evidence from the World Bank

Existing studies imply that multilateral development assistance is more effective than bilateral assistance. However, multilateral assistance is increasingly constrained through earmarked funding where donors restrict the use of their funds. Such funding shifts decision-making power away from multilateral donors and increases transaction costs through more stringent monitoring requirements. We argue that the consequences of these constraints are negative for aid effectiveness. We test this argument by studying the effectiveness of the World Bank in increasing economic growth. Our research design combines novel data on the funding composition of growth-focused development projects between 1995 and 2014 with georeferenced data on their sub-national locations within 50x50km grid cells. Using difference-in-differences estimation, we assess whether local economic development, measured through the Gross Cell Product, increases in areas where core- and trust-funded projects were located in the previous year. We find that while growth-focused projects are generally effective, core-funded projects have a substantially greater impact than trust-funded projects. These findings imply that donors should consider allocating a greater share of their multilateral development assistance as unearmarked contributions if they want to safeguard the development impact of this assistance.

Earmarked Funding and the Control–Performance Trade-Off in International Development Organizations

AbstractSince 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.

A Multilateral Donation that Boomerangs Home: Analysing the Donor State Advantage in UN Procurement

Bilateral aid procurement is politicised and strongly favours suppliers from donor countries. Does multilateral development assistance eliminate the procurement bias favouring donor countries because international bureaucrats make procurement decisions? Existing evidence from the World Bank, which delegates procurement responsibilities to aid recipient countries, cannot answer our theoretical question. Using official data from 20 UN organisations during the 2013–2018 period and applying regression and mediation analysis, we find that the procurement of international organisations still favours donor countries when international bureaucrats make procurement decisions. We identify donor state representation within the UN staff as a key stepping stone linking donation to procurement bias. In contrast, member states whose nationals are heads of a UN bureaucracy do not enjoy procurement advantage, suggesting that UN procurement bias operates through an informal bottom-up channel. Our paper contributes to the debates on the independence of international organisations in the context of multilateral development assistance and procurement.

Sustainable Energy for All? Assessing Global Distributive Justice in the Green Climate Fund’s Energy Finance

AbstractThere is growing international attention to the goal of universal energy access. Despite this, large financial gaps remain a major obstacle for realizing global energy justice for all communities. Drawing on political theories of global distributive justice, this article develops and applies a framework for how multilateral development assistance for energy projects can be evaluated in relation to three guiding principles. First, the global difference principle asserts that resources should be distributed to maximize the condition of the least well-off humans. Second, the local benefits principle asserts that resources should be distributed in ways that enhance the public goods of local communities, particularly those that are historically marginalized. Third, the global equality of opportunity principle asserts that all social groups and states have the capabilities to equitably access institutional structures relevant to the distribution of resources. We apply this framework to an analysis of finance for all energy projects within the Green Climate Fund (GCF) from 2015 to 2018. In doing so, we offer a nuanced understanding of the successes and failures regarding the performance of the GCF’s energy portfolio in relation to global distributive justice.

Whose aid? Whose influence? China, emerging donors and the silent revolution in development assistance

Rising economies including China, the United Arab Emirates, Brazil, Korea, India, Kuwait and Saudi Arabia are subtly changing the rules of foreign aid with profound consequences for the role of multilateral institutions and conditionality. Fears abound that this new aid is bolstering rogue states, fuelling corruption, and increasing the debt burdens of poor countries. This article critically assesses these arguments before dissecting the attractions of emerging donors' aid against a background of established donors' failure to deliver on promises to increase aid, reduce conditionality, better coordinate and align aid efforts, and reform the aid architecture. It argues that a silent revolution is taking place whereby the emerging donors are not overtly attempting to overturn the rules of multilateral development assistance, nor to replace them. Rather, by quietly offering alternatives to aid-receiving countries, they are weakening the bargaining position of western donors. The resulting tensions underscore the urgency of reforming the multilateral aid system.

Official Development Assistance and Foreign Direct Investment Flows to Sub-Saharan Africa

Abstract: Foreign direct investment is believed to have a positive impact on the economies of the developing countries but its determinants are not yet fully established. This paper empirically investigates the relationship between official development assistances and foreign direct investment flows using panel data from 11 sub-Saharan African countries for the period 1990–2003. The results show that bilateral official development assistance has a significant and positive influence on foreign direct investment flows. The results also show that trade openness, growth rate in the labor force, and exchange rates have a positive and significant effect on foreign direct investment flows. But multilateral development assistance, the growth rate in GDP per capita, the country's composite risk level, and the index for political freedom and civil liberties do not have a statistically significant effect on foreign direct investment flows. The policy implication of the positive and significant influence of the bilateral official development assistance on foreign direct investment is that the recipient countries need to formulate policies that improve their economic relationships with the donor countries in order to attract greater foreign direct investment flows from the multilateral corporations located in these countries.

How multilateral development assistance triggered the conflict in Rwanda

Previous to the genocide in Rwanda in 1994, multilateral development agencies promoted three different strategies in the country. These were economic structural adjustment programmes, the multiparty democratisation process and the peace negotiation and implementation process (in co-operation with the OAU). In this article, I propose that these three strategies had contradictory and mutually negating effects on each other, and that they in combination contributed to a weakening of the regime. The conclusion is that these strategies-despite the best intentions-triggered the conflict. The article ends with a discussion of lessons to learn with regard to the role of multilateral development agencies in crisis prevention.

United Nations Seminar on Indigenous Peoples and States

A recent meeting of governmental and indigenous nongovernmental experts in Geneva paved the way for more direct indigenous participation in United Nations decision making, and challenged the international community to harness multilateral development assistance for the promotion of indigenous peoples’ rights.

The political economy of fisheries development in the third world

International agencies have contributed significantly to the promotion of capital-intensive fisheries development programs in many Third World nations. Activities of both bilateral and multilateral development assistance agencies are examined and shown to have certain common features, notably production-oriented programs typified by the introduction of powerful new fishing technologies, and the promotion of fishery exports as a means of increasing foreign exchange earnings. The argument is advanced that these programs have been largely detrimental to the best interests of recipient nations because they have ignored both resource limitations and the distributional consequences of such development.

Assistance to expand agricultural production

Bilateral and multilateral development assistance agencies have devoted major resources to programs to support more rapid growth of agricultural production in developing countries. In this paper I review the effectiveness of assistance activities in land and water development, agricultural research and extension, the reform of land tenure arrangement, and the development of agricultural credit institutions. Investments in several of these activities, particularly land and water resource development and agricultural research, have had relatively high rate of return. Yet in almost all areas there has been a continuous cycling of program priorities and thrusts. There has been a persistent failure to learn from failure—or from success. In the future, more attention needs to be given to the generation of socialscience knowledge for the design and reform of the institutional infrastructure needed to sustain agricultural development.