Amid pressing global challenges and tightened international aid spending, questions regarding the effectiveness of different development financing modalities have become highly relevant. Multilateral organisations deliver a substantial and increasing part of official development assistance (ODA) and receive funding from member states via two different financing modalities: core funding and earmarked funding. Yet, current research and policy discussions on the effectiveness of these funding modalities do not provide a clear overall picture.
This discussion paper, produced jointly by EBA and the German Institute for Development Evaluation (DEval), presents the results of a systematic review of the state of knowledge on the effectiveness of core funding and earmarked funding to multilateral organisations. This entailed a systematic identification of literature that presents empirical evidence on the effectiveness of different financing modalities. Following a strict search process and quality assessment, 36 publications were included and analysed. The analysis draws on a nuanced, three-dimensional conceptualisation of effectiveness (covering “process”, “outcome” and “cost”) and three intervention levels (“project”, “organisation” and “system”).
The review demonstrates, amongst other things, that core funding appears to be more effective than earmarked funding because it gives multilateral organisations greater autonomy. Moreover, its predictability also enables strategic and long-term planning. Overall, core funding seems to better support organisations in achieving development goals. Importantly, the review identifies several evidence gaps, primarily concerning the effectiveness of the different funding modalities at the system level.