Multilateral Aid to the Rescue? Sectoral Fragmentation of Bilateral Development Aid and the Role of the World Bank

Abstract

Bilateral aid projects continue to proliferate in an uncoordinated fashion, leading to fragmented aid delivery, despite high-level political promises to reign in the practice. Frequently absent in the academic and policy debates is an exploration of which policy venues can be effective in changing donor behavior. In this paper, we explore the role of the World Bank in promulgating best practices and enhancing sectoral coordination among bilateral donors. The World Bank's size, policy clout, and its own publicly stated commitments should make it a prime candidate for enacting measures that can help reduce bilateral aid proliferation and fragmentation. We concentrate on sectoral aid allocations and identify possible venues through which the World Bank can affect bilateral donor behavior and increase allocative efficiency, including as Lead Partner, Balancer, and by leading by example through Best Practices. Based on project-level data from 1998 to 2013, we find that bilateral donors and the World Bank allocate projects in a complementary fashion into the same sectors. Furthermore, World Bank and bilateral project numbers move together, and there is some evidence that bilateral donors emulate World Bank behavior. There is no evidence that World Bank activities help to reduce bilateral aid fragmentation.