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

Abstract

Earmarked aid to international organizations has quadrupled over the last two decades and now represents almost 20% 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 make it possible to track the rise of the new aid channel over an extended time period 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 patterns in earmarked aid for all actors: donor governments and their aid-providing agencies, multilateral organizations, and recipient countries. We also highlight promising research questions that can be analyzed with the multi-bi data. In a first empirical application of the data, we analyze four suggested donor motives for earmarked aid at the donor-recipient level. Contrary to donor claims, we find that earmarked aid and bilateral aid target the same recipients. We also find evidence that some donors use earmarked aid to bypass recipient countries with weak governance. Overall, our explorative analysis suggests that earmarked aid serves many purposes and that donors use it in different ways. This calls for more fine-grained research on the reasons and implications for earmarked aid.

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Notes

  1. 1.

    Multi-bi or earmarked aid refers to “voluntary external assistance from donors for a multilateral agency which is supplementary to core membership contributions and which is earmarked for specific purposes” (OECD 2005: 102).

  2. 2.

    The OECD/DAC notes discusses the quality of the CRS data and its coverage ratio here: http://www.oecd.org/dac/stats/crsguide.htm (accessed October 18, 2016).

  3. 3.

    The Online Appendix is available on the website of the Review of International Organizations.

  4. 4.

    In the 1996–2001 period, Denmark is an outlier in the Nordic group, providing only around 1.5% of its ‘pure’ bilateral aid as earmarked aid.

  5. 5.

    We calculate the Herfindahl index as the sum of squared shares of a donor’s agencies in the donor’s total aid budget. Values thus range from 1/N to 1, where N refers to the number of aid-providing agencies.

  6. 6.

    Most earmarked funds provided to multilateral organizations are pre-specified for specific countries, sectors, or focus areas but some money supports institutional capacity building, research on specific topics, or targets other programs and initiatives within a multilateral organization (see Eichenauer and Reinsberg 2014).

  7. 7.

    We caution against over-interpreting the finding of a single year in the early 1990s as solid evidence because problems of underreporting in this period were substantial.

  8. 8.

    This might be due not only to the actual increase in aid-receiving organizations but also to improved data quality.

  9. 9.

    No graphs are shown but they can be obtained from the authors upon request.

  10. 10.

    The World Bank also receives substantial amounts of earmarked aid from the European Commission.

  11. 11.

    The concept of earmarking only partly carries over to the humanitarian realm: In some cases, agencies explicitly ask for specific supplies (i.e., shelters, equipment, or food); when donors provide such requested supplies, their contributions are earmarked by definition. In other cases, earmarked aid is donor-driven although for possibly distinct reasons that earmarked aid for development purposes. In the multi-bi aid data, 25% of earmarked aid activities are provided for humanitarian purposes and less than 1% is earmarked for debt relief. Almost all humanitarian aid or debt relief are earmarked for a specific country (89.7% and 89.5% respectively) and more than one third or fifth moreover has a sector earmark.

  12. 12.

    We used CRS sector codes at the finest level of disaggregation (5-digit purpose code).

  13. 13.

    We tried several different thresholds to define a bilateral presence in a country or sector, e.g., annual commitments above 10,000 USD or 100,000 USD, more than three activities, or combinations of these criteria. These alternative operationalizations do not affect the conclusion that earmarked aid supports countries or sectors that already benefit from bilateral aid.

  14. 14.

    Figures are available from the authors upon request.

  15. 15.

    Note that the constitutive term of the latter variable drops out due to donor fixed effects.

  16. 16.

    Market-oriented donor economies are Australia, Canada, Ireland, New Zealand, the Scandinavian countries (Sweden, Norway, Denmark, and Finland), the United Kingdom, and the United States (Dietrich 2016).

  17. 17.

    Disaster data are from EM-DAT (CRED 2015). To allow for the possibility that disaster aid is committed in the year of the disaster occurrence, we replace the lagged number of disasters with its contemporaneous value in columns 3–8 of Table 1. The coefficient remains positive but insignificant.

  18. 18.

    Computed based on column 3 as follows: For coordinated market economies, 100*(exp(−0.236)-1) * -0.65 = 13.6%. For market-oriented donors, 100*(exp(−0.236–0.855)-1) * -0.65= 43.2%.

  19. 19.

    Again using the exponential transformation on the coefficient of column 8: 100*(exp(0.363)-1) = 43%.

  20. 20.

    Results are available upon request.

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Acknowledgements

The authors thank Tilman Brück, Axel Dreher, Andreas Fuchs, Hinnerk Gnutzmann, Elena McLean, Alexandra Rudolph, Rainer Thiele, Felicity Vabulas, participants at the Beyond Basic Questions Workshop 2015 (Hannover), the Conference on Development Economics Group of the German Economic Association 2015 (Kiel), and the Political Economy of International Organizations Conference 2016 (Salt Lake City, UT) for helpful comments on previous versions of this paper, Franziska Volk and Sven Kunze for valuable research assistance, and Jamie Parsons for proofreading. Both authors gratefully acknowledge support from the Swiss Network for International Studies.

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Correspondence to Bernhard Reinsberg.

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Eichenauer, V.Z., Reinsberg, B. What determines earmarked funding to international development organizations? Evidence from the new multi-bi aid data. Rev Int Organ 12, 171–197 (2017). https://doi.org/10.1007/s11558-017-9267-2

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Keywords

  • Foreign aid
  • Aid delivery channels
  • Earmarked aid
  • Delegation
  • Principal-agent
  • Collective principal

JEL classifications

  • F35
  • F53
  • F59
  • O19