Funding Complexity and the Effectiveness of International Development Organizations

A burgeoning literature has demonstrated the growing complexity of the regimes that aim to address global public policy. The number, diversity and interconnectedness of International Organisations (IOs) have increased steadily over the last thirty years. One of the consequences of this trend is the rising complexity of funding regimes. For example, IOs in the global development regime now routinely co-finance projects with other IOs, work side by side with public-private partnerships and set up trust funds to channel new resources to donors’ priorities. As a result, earmarked funding is on the rise. The consequences of this development for the success of IO operations are insufficiently understood. We hypothesise that earmarked funding can improve the effectiveness of individual projects because the tighter accountability of earmarked funds, due to additional reporting and shorter reporting frequency, induces added effort from IO staff. However, as the depth and breadth of funding complexity within IOs’ portfolios increase, they are faced with more complex principal relationships. Such complexity can lead administrative burdens to grow, and IOs’ bargaining position vis-à-vis recipients to suffer. Consequently, we expect that more complex funding portfolios weaken IO performance overall. We test these hypotheses using a database of more than 8,000 evaluations of projects by five international development organisations (AFDB, ASDB, CDB, IFAD, World Bank) run between 1990 and 2020 in more than 150 countries. The results have important implications for debates on regime complexity and aid effectiveness by highlighting the consequences of increasing complexity of IO funding for their ability to deliver on their mandates.