global public goods (IEG 2011a: viii). While multi‐donor trust funds could, theoretically, improve donor coordination prior to implementation, reducing excessive and harmful donor fragmentation in the field (Huq 2010, IEG 2011a: ix), its effects on donor harmonization seem ambiguous (IEG 2011a: 43, Barakat et al. 2012: 34f.) as trust funds usually do not replace existing bilateral and multilateral projects (Barakat 2009: 112).

An evaluation of World Bank trust funds (IEG 2011a: 7) highlights their importance for countries in arrears or entities, where IDA is legally forbidden to engage and bilateral donors prefer not to engage alone. Looking at aggregate official aid flows, however, it is still unclear whether, and in what sectors or countries, trust fund aid substitutes for (i.e., “crowds out”) or complements multilateral or bilateral aid, or if it is additional to traditional aid. Using data on donors organized in the OECD’s Development Assistance Committee (DAC), Reinsberg et al. (2015) find some evidence that earmarked or multi‐bi aid is additional to “core” multilateral aid, although their estimations may suffer from potential reverse causality and simultaneity. Based on data for the World Bank through 2009, Huq (2010) finds that the sectoral allocation of trust funds executed by recipients is “aligned” (or positively correlated) with IDA but not with IBRD disbursements.

Donor countries might prefer using trust funds rather than bilateral or multilateral aid for a number of reasons. Donors might seek to supplement IDA funding for particular countries, sectors and/or projects, and trust funds are often used to co‐finance IDA projects. In other cases, bilateral donors may use trust funds to complement their bilateral programming when their aid agencies do not have sufficient presence or expertise in countries to implement programs effectively (OECD 2010: 40, 2011: 29). Donor officials state that the proliferation of trust fund aid is associated with a need for a new type of aid that is complementary to the existing multilateral and bilateral aid. They claim that multilateral core contributions to the World Bank and other MDBs cannot achieve some aims because contributions cannot be earmarked (IEG 2011a). The evaluation by the World Bank’s International Evaluation Group (IEG) (2011a: 6) thus concludes: “trust funds are a way to circumvent the allocation system of the MDBs’ [multilateral development banks] country‐based business model.”<sup>7</sup> Eligibility for IDA funds is based on being under a per capita Gross National Income (GNI) threshold and on a lack of access to non‐concessionary lending. Replenishments of IDA, and IDA policies regarding allocations and other issues, are negotiated every third year by donor countries. Throughout our sample period, IDA resources were allocated according to an explicit rule taking into account recipient need (as measured by low per capita income) and the quality of economic policies and governance, where the latter is assumed to increase aid effectiveness (e.g., Burnside and Dollar 2000, 2004). The World Bank’s “Country Policy and Institutional Assessments” (CPIA) measure the quality of policies and institutions, and are the most important element in the formula

> 7 The IEG (2011a) also found that six out of eight donors direct aid resources through trust funds “to issues or countries of national policy or public interest” and that five out of eight donors use trust funds to influence the World Bank. A UK official stated that his government supports large global funds in climate change, health and education because of “impatience with the existing multilateral system” (IEG 2011a: 6).

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