Does earmarked funding affect the performance of international organisations?

Abstract

What determines the performance of international organisations (IOs)? We argue that funding structures remain an overlooked driver of IO performance. Over the past decades, donor governments have provided an increasing share of their contributions to IOs in the form of earmarked resources, which provide them with the opportunity to restrict the use of funding to specific themes, sectors, regions, countries or projects. This development has raised concerns about the ability of IOs to perform their duties, given that earmarked funds distort programme priorities away from recipient need and increase transaction costs for IO staff. Beyond qualitative evidence from case studies, concerns about the performance‐related effects of earmarking remain untested in large‐N analysis. Drawing on 64 performance assessments of 32 IOs from 2009 to 2021, undertaken by the Multilateral Organisation Performance Assessment Network, we employ latent factor analysis to extract measures of process performance—the extent to which IOs have rules, procedures and routines in place to plan strategically, manage operations efficiently, liaise with partners effectively, monitor results and promote institutional learning—and outcome performance—the extent to which IOs achieve results that are relevant, efficient and sustainable. Using multivariate regressions, we find that earmarked funding is negatively related to process performance. Our result is robust to alternative model specifications and an instrumental variable design that helps mitigate concerns about endogeneity. These results have important implications for our understanding of IO performance and policy implications for donors of IOs.