How Does Earmarked Foreign Aid Affect Recipient-Country Ownership?

Abstract

How does earmarked foreign aid affect country ownership, a central principle of the aid effectiveness agenda? Although earmarking was initially purported to reduce donor fragmentation and enhance aid effectiveness, recent evidence suggests that it may undermine ownership. Despite formal commitments to ownership by multilateral institutions and bilateral donors within the Development Assistance Committee (DAC), earmarking potentially strengthens the responsiveness and accountability of international organizations to donors, thereby undermining recipient countries' ownership in formulating policy objectives, use of country-led results frameworks, and implementation of aid through national systems. We test this expectation through a mixed-methods approach. We first employ latent factor analysis on new data from two monitoring rounds of the Global Partnership for Effective Development Cooperation, covering 80 donors and 92 recipient countries, to measure ownership by the degree of donor−recipient alignment. Our multivariate regression analysis then demonstrates that earmarked aid significantly reduces recipient-country ownership. Further examination of institutional and DAC donor policies and discourses reveals limited recognition of the adverse effects of earmarked funding on ownership. We find evidence to support the notion that bilateral donors employ earmarking to both enhance their influence within international development organizations and to pursue national interests, inadvertently sidelining ‘old’ concerns about aid effectiveness and ownership. Our findings thus expose a clear disconnect between donor rhetoric and practice, with significant implications for aid effectiveness and aid allocation more broadly.