Navigating Development Cooperation for Structural Transformation

Motivation The Fourth International Conference on Financing for Development has provided a once‐in‐a‐decade opportunity for the international community to take stock of both progress in and challenges to financing Sustainable Development Goals (SDGs). Although the Addis Ababa Action Agenda has called for a transformative, comprehensive and holistic approach to implementing SDGs, the international development financing system are falling short of expectations. It is high time to reform the international development financing system to fit for purpose. Purpose The present paper aims to answer why it is important to foster structural transformation as a key engine for achieving SDGs, what limitations that the existing international development financing system suffer from, and how to rejuvenate the spirit of public entrepreneurship to promote structural transformation. Approach and methods First, it takes a historical approach to understand the imperative for achieving structural transformation. Second, it uses the case analysis of infrastructure financing to diagnose the limitations of the international development financing system. Third, it provides a framework for reforming the international development financing system. Findings Achieving structural transformation in a sustainable and inclusive manner is a powerful engine for both alleviating poverty and tackling global challenges. Yet, the international development financing system has failed to foster long‐run structural transformation due to its inclination to search for ready‐made solutions to complex structural challenges and its focus on short‐term performance targets and deteriorating fragmentation. Policy implications At the strategy level, the international development cooperation system should rejuvenate the spirit of public entrepreneurship in pursuit of structural transformation in a sustainable, equitable and resilient manner. At the operational level, development cooperation agencies should go beyond the current ‘from billions to trillions’ agenda to advance transformational scaling. At the level of international rules, it should create enabling conditions for development finance providers to provide large‐scale, long‐term and high‐risk capital while safeguarding financial soundness and stability.