Earmarked funding and the effectiveness of international development organizations (EF-IO)

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The EF-IO research program will examine how earmarked funding affects the effectiveness of international development organizations (IDOs) in addressing global development challenges. 'Earmarked funding' refers to financial contributions from donor governments to IDOs whose use is restricted to specific recipient countries, themes, or sectors. Over the past two decades, flows of earmarked funding to IDOs have increased tenfold, which has led to growing concerns about a decline in the ability of such organizations to allocate resources in accordance with development needs, increased transaction costs of aid delivery, and unhealthy competition for funding among IDOs. Apart from case studies on individual IDOs, our knowledge about the consequences of earmarked funding on IDOs is limited. Against this background, EF-IO pursues the following research aims: -- develop a theoretical framework to understand the variegated effects of earmarked funding on IDOs;-- establish the complex relationship between earmarked funding, organizational performance, and project performance;-- examine to what extent IDO performance is related to IDO effectiveness.To achieve these objectives, EF-IO will use a multi-method approach combining qualitative analysis of 40 semi-structured interviews with development stakeholders, structural regression analysis of large-N administrative data at different levels of analysis, and survey data analysis at the country level. First, EF-IO will draw on semi-structured interviews with over 40 IDO stakeholders to establish the prevalence of a 'micro-macro paradox' of earmarked funding, whereby the availability of earmarked funding can bolster the performance of individual projects but at the same time undermine the organizational performance of implementing IDOs. Second, by extending the available data on earmarked funding and linking them to new data on performance, EF-IO will establish whether and how earmarked funding affects the performance of individual projects and their implementing IDOs. To that end, EF-IO will further develop appropriate methodological tools to assess the causal impact of earmarked funding, including structural regression analysis and instrumental-variable designs. Third, through piloting a survey experiment, EF-IO will examine how IDO performance affects aid effectiveness as perceived by country elites. To that end, it will build on a UN-administered survey with recipient-country elites. Aside from contributing to several strands of social-scientific research, findings from EF-IO will inform the policy debate on earmarked funding. By providing fresh evidence on how earmarked funding affects the effectiveness of IDOs, it suggests avenues for reform of such funding in view of maximizing the potential of IDOs to achieve the 2030 Sustainable Development Goals (SDGs) while considering the need for donors to ensure visibility of their development contributions.