Measuring Fragmentation: The Financial Significance of Aid Relations

Abstract

While a variety of funding options can be desirable to countries, fragmentation remains a critical challenge to the effectiveness of development co-operation and partly arises from a lack of concerted and co-ordinated allocation practices among providers. The chapter presents one approach in measuring aid fragmentation, which is developed around the rationale that managing a “long tail” of small providers imposes additional transaction costs that can hamper countries’ resource management.

The chapter explains the Organization for Economic Cooperation and Development’s (OECD’s) fragmentation ratio, which highlights the share of all provider-country partnerships that are financially nonsignificant from the perspective of both the provider and the recipient country.

It is crucial to increase the availability of information on international public finance for a more effective choice of funding instruments, better allocation of resources and reduced transaction costs.