How much of official development assistance is earmarked

Abstract

While the issue of earmarking has been widely studied in the context of public finance, there is little analysis of the extent and potential implications of earmarking of foreign aid. This paper attempts to fill this gap by first defining 'earmarked foreign aid' as Official Development Assistance (ODA) whose uses are pre-determined by the funding source ('ODA earmarked at source'), and then by examining its evolution since the mid 1990s. Using ODA data reported to the Organization for Economic Co-operation and Development (OECD)-Development Assistance Committee (DAC), the paper finds that the share of earmarked ODA in total ODA increased from 29 percent in 1995-2000 to about 38 percent during 2001-2006. For International Development Association (IDA)-eligible countries as a group, earmarking increased from about 17 percent to about 25 percent of ODA during the same period. Finally, the paper discusses how earmarking of aid might impact fiscal policy and resource allocation in recipient countries and suggests that further country level studies would be needed to corroborate some identified hypotheses.

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