Five steps to smarter multi-bi aid: a new way forward for earmarked finance

Multi-bi aid – donor contributions to multilateral organisations earmarked for specific purposes – is an important channel for financing development, and is expected to grow. Yet multi-bi aid poses significant challenges for both multilateral and bilateral actors, including lack of alignment with recipient-country priorities, aid fragmentation, and increased transaction costs. This report explores the potential for smart reforms of multi-bi aid. A five-step plan to improve multi-bi aid requires: better data-access and management; recovering the full economic cost of earmarking; fee structures for improving impact; stronger internal rules to curb fragmentation; and better country ownership and participation. These reforms can make multi-bi aid more effective and efficient while enhancing its legitimacy in the eyes of recipients

Fully-automated liberalism? Blockchain technology and international cooperation in an anarchic world

A recent wave of scholarship attests that the liberal world order is under threat. Although there is disagreement about the underlying reasons for this diagnosis, there are few attempts to further our understanding of how the liberal order can be reinvigorated. This paper probes the potential of blockchain technology to promote international cooperation. Blockchain technology is a data structure that enables global governance stakeholders to establish decentralized governance systems which provide high-powered incentives for enhanced cooperation. By outlining the contours of a blockchain-based global governance system for climate policy, the paper illustrates that blockchain technology holds theoretical promise to foster cooperation in three ways: leveraging new sources of information through blockchain-based prediction markets; allaying coordinating problems through reducing the cost of transactions for side payments; and allowing states and other global governance actors to make more credible commitments given guaranteed execution of blockchain-enabled smart contracts. By empowering local knowledge holders and non-state actors that traditionally lacked the means to coordinate efforts to influence global politics, blockchain technology also promises to advance an international order based on liberal values. In actuality, however, emerging blockchain-based global governance systems will fall short of the libertarian ideal of ‘fully-automated liberalism’ as their design and operation will remain under the shadow of power

Organizational reform and the rise of trust funds: lessons from the World Bank

Over the past two decades, earmarked funding to international development organizations through special-purpose trust funds has increased greatly. This paper studies the incentives for trust funds from the perspective of multilateral agencies, notably the World Bank. A theoretically intriguing type of funds are so-called “pass-on funds,” in which one unit hosts the fund, then passes on its resources to another type of unit for implementation. Each unit has different preferences for the specific types of activities to be supported by the fund. Interviews with World Bank staff and complementary documents demonstrate the rationale for pass-on funds and the associated division of labor between fundraising network units and implementing regional units. While pass-on funds reflect an efficient division of labor between functionally specialized units, they increase the misalignment between sector-specific global priorities and country-specific needs. Organizational reform drove the sudden explosion of pass-on funds around the millennium turn, facilitated by growing availability of donor monies for specific sectors and by lenient internal regulation. Organizational reform undermined budget autonomy of sector units, causing those units to seek new funds in their areas of expertise. A number of reform features also reduced administrative budgets of country units, increasing their demand for pass-on funding grants. The results contribute to the emerging literature on earmarked funding and highlight the need to consider international organizations as heterogeneous actors

the decisive role of domestic veto players

Sovereign Wealth Funds (SWFs), government-owned investment funds, are of growing importance in international finance. They are a vehicle to manage foreign exchange reserves and wealth which have been accumulating in the emerging world, particularly in the BRICs. However, while China and Russia set up SWFs over the last decade, India and Brazil still lack such funds. In analysing thoroughly the Indian case, this paper seeks to contribute to recent literature on the determinants of SWFs with two main findings: First, it confirms conventional economic theory which shows the requirement of excessive foreign reserves for the set-up of SWFs. Second, it suggests that political systems matter, as demonstrated by the lively debate in India on whether that country should have such a fund. In this way, influential societal actors, in particular the central bank and regulating agencies as well as business associations, have dominated the public discourse and successfully lobbied the government to waive initial plans in support of an alternative wealth management scheme

Blockchain technology and the governance of foreign aid

Blockchain technology has been considered a vehicle to foster development in poor countries by promoting applications such as secure delivery of humanitarian aid, digital identity services, and proof of provenance. This article examines whether (and if so, how) blockchain technology can enhance the effectiveness and efficiency of foreign aid governance, thereby moving beyond completely anonymous contexts. Foreign aid governance is plagued by lack of credible commitments among states, which are further exacerbated by information asymmetries and which often undermine aid effectiveness. In this context, blockchain technology holds two promises. First, through the guaranteed execution of smart contracts, it can strengthen the credibility of state commitments, for example collective burden-sharing rules among a group of donors or recipient country compliance with policy conditionality in return for aid. Second, through leveraging prediction markets, blockchain technology can allay information problems related to the verification of real-world events along the entire aid delivery chain

Five steps to smarter multi-bi aid: a new way forward for earmarked finance

Multi-bi aid – donor contributions to multilateral organisations earmarked for specific purposes – is an important channel for financing development, and is expected to grow. Yet multi-bi aid poses significant challenges for both multilateral and bilateral actors, including lack of alignment with recipient-country priorities, aid fragmentation, and increased transaction costs. This report explores the potential for smart reforms of multi-bi aid. A five-step plan to improve multi-bi aid requires: better data-access and management; recovering the full economic cost of earmarking; fee structures for improving impact; stronger internal rules to curb fragmentation; and better country ownership and participation. These reforms can make multi-bi aid more effective and efficient while enhancing its legitimacy in the eyes of recipients

Trust funds as a lever of influence at international development organizations

Trust funds – broadly defined as financial vehicles to channel development funding earmarked for specific purposes through international development organizations – have grown substantially over the past two decades. Reflecting the variety of trust fund purposes and related governance arrangements, an emergent literature emphasizes a diversity of reasons underlying this growth. This paper proposes a simple – yet encompassing – explanation applicable to all kinds of funds: donors use trust funds to wield ‘influence’ – leveraging financial resources to alter the policies of multilateral organizations. Based on interviews at the World Bank, the study shows that influence is a dominant motive behind trust funds, though the capacity and willingness to wield influence varies across donors. Influence is a salient motive especially for medium‐sized donors and emerging donors but surprisingly less so for large donors. In addition, attempts of influence are most effective when donors promote new thematic issues that did not previously feature Bank assistance and outside established programs. Concerns among stakeholders about undue donor influence are highest with respect to the global knowledge work of the World Bank but are virtually absent when involving donors in the operational activities at the country level

Structural adjustment, state capacity, and child health: evidence from IMF programs

Background: Consensus is growing that policy reform programmes by the International Monetary Fund (IMF)—an international organization mandated with upholding global financial stability and assisting countries in economic turmoil—produce adverse effects on public health. However, this consensus is unclear about which policies of these programmes underlie these effects. This article fills parts of this gap by examining the impact of four kinds of IMF policies (fiscal policy, public-sector employment, privatization of state-owned enterprises and price liberalization) on public-health expenditure, child vaccination and child mortality. Methods: We conducted time-series cross-section analyses for up to 128 developing countries over the 1980–2014 period using observational data on health outcomes and IMF conditionality for different policy areas. IMF effectiveness research faces two types of potential biases: self-selection into IMF programmes and IMF policy conditions. We deployed instrumental variables in a seemingly unrelated regression framework to address both types of endogeneity, besides traditional remedies such as the use of fixed effects on countries and years. Results: IMF policy conditions on public-sector employment are negatively related to child health. A change from the minimum to the maximum number of such policy conditions decreases vaccination (which ranges from 0 to 100) by 10.97% [95% confidence interval (CI): 1.16 to 20.79]. This effect is robust against different sets of control variables. In addition, IMF programmes increase the share of government expenditure devoted to public health in developing countries by 0.91 percentage points (95% CI: 0.15 to 1.68). Conclusions: These findings suggest that IMF policies—particularly those that require public-sector reforms—undermine health by weakening the capacity of states to deliver vaccination. Therefore, international financial institutions need to increase their awareness of the public-health impact of their policy prescriptions. Strengthening state capacity in times of economic crisis would ensure that increased health spending also delivers quality healthcare

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

Institutional overlap and the survival of intergovernmental organisations

A burgeoning literature emphasises the role of favourable external conditions and institutional design as key drivers of the survival of intergovernmental organisations. This article focuses on institutional overlap as a hitherto overlooked determinant of IGO survival. Studies on institutional complexity posit that overlap – the extent to which organisations perform similar tasks to address similar problems for some common members – may decrease the survivability of IGOs due to rule conflicts, institutional paralysis, and competitive pressures for limited resources. Contrary to this perspective, this article argues that greater overlap increases the likelihood of IGO survival for two reasons. First, similar IGOs will survive as member states use them to pursue forum-shopping strategies. Second, overlap enables IGO secretariats to draw on networks of support from other IGOs, rendering organisations that densely overlap with others more resilient. To test these propositions, the article combines data on institutional overlap in global governance and the survival of the 534 IGOs contained in the Correlates of War IGO dataset. Non-linear regression analysis finds that where organisations overlap more with existing organisations in terms of governance tasks and issue areas, the likelihood of IGO survival increases. Further analysis suggests that this result is driven by the forum-shopping strategies of powerful member states. Given that contemporary world politics is governed by an increasingly dense network of IGOs, these results hold important implications for the study of IGO survivability and the evolution of global governance more broadly