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Bilateralizing multilateral aid? Aid allocation by World Bank trust funds

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  • Eichenauer, Vera
  • Knack, Stephen

Abstract

Over the last decade, donors of foreign aid quadrupled their annual contributions to trust funds at the World Bank. Concerns have been raised that trust fund aid may undermine the incentives associated with IDA s performance-oriented aid allocation. Moreover, the earmarking of contributions to donors preferred recipient countries might bilateralize multilateral aid, potentially to the detriment of aid effectiveness. Using new data on World Bank trust fund disbursements for the 2002-2012 period, we test whether trust fund aid substitutes for IDA inflows, and, as official narratives suggest, for other aid inflows. We also investigate the bilateralization hypothesis by comparing multilateral core aid to trust fund disbursements. Trust fund aid is generally not allocated according to World Bank s Country Policy and Institutional Assessment (CPIA) index, which could undermine the incentives generated of the IDA allocation mechanism. This result is confirmed when we consider the health, education, and environment sector separately using sector-specific CPIA scores and IDA aid. We do not find systematic evidence that trust funds are to a larger degree motivated by political and economic motives.

Suggested Citation

  • Eichenauer, Vera & Knack, Stephen, 2015. "Bilateralizing multilateral aid? Aid allocation by World Bank trust funds," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113211, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc15:113211
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    Cited by:

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    2. Yooneui Kim & Youngwan Kim, 2021. "The autonomy of international organizations? The analysis of major powers’ influence over the World Bank’s aid policies," International Area Studies Review, Center for International Area Studies, Hankuk University of Foreign Studies, vol. 24(3), pages 224-240, September.
    3. Reinsberg,Bernhard Wilfried & Michaelowa,Katharina & Knack,Stephen, 2015. "Which donors, which funds ? the choice of multilateral funds by bilateral donors at the World Bank," Policy Research Working Paper Series 7441, The World Bank.
    4. Laurent WAGNER, 2016. "How do Earmarked Funds Change the Geographical Allocation of Multilateral Assistance?," Working Papers P150, FERDI.

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    More about this item

    JEL classification:

    • F55 - International Economics - - International Relations, National Security, and International Political Economy - - - International Institutional Arrangements
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • P45 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - International Linkages

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