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The elusive quest for additionality

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  • Carter, Patrick
  • Van de Sijpe, Nicolas
  • Calel, Raphael

Abstract

Development finance institutions (DFIs) annually invest $90 billion to support under-financed projects across the world. Although these government-backed institutions are often asked to show that their investments are “additional” to what private investors would have financed, it is rarely clear what evidence is needed to answer this request. This paper demonstrates, through a series of simulations, that the nature of DFIs’ operations creates systematic biases in how a range of estimators assess additionality. Recognizing that rigorous quantitative evidence of additionality may continue to elude us, we discuss the value of qualitative evidence, and propose a probabilistic approach to evaluating additionality.

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  • Carter, Patrick & Van de Sijpe, Nicolas & Calel, Raphael, 2021. "The elusive quest for additionality," World Development, Elsevier, vol. 141(C).
  • Handle: RePEc:eee:wdevel:v:141:y:2021:i:c:s0305750x2100005x
    DOI: 10.1016/j.worlddev.2021.105393
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    3. Lea Marchal & Claire Naiditch & Betul Simsek, 2022. "How Foreign Aid Affects Migration: Quantifying Transmission Channels," EGEIWP 02-2022, Dipartimento di Economia e Finanza - Università degli Studi di Bari "Aldo Moro", revised Jan 2023.
    4. Gurara, Daniel & Presbitero, Andrea & Sarmiento, Miguel, 2020. "Borrowing costs and the role of multilateral development banks: Evidence from cross-border syndicated bank lending," Journal of International Money and Finance, Elsevier, vol. 100(C).
    5. Swinkels, Laurens, 2024. "Trading carbon credit tokens on the blockchain," International Review of Economics & Finance, Elsevier, vol. 91(C), pages 720-733.
    6. Chiara Broccolini & Giulia Lotti & Alessandro Maffioli & Andrea F Presbitero & Rodolfo Stucchi, 2021. "Mobilization Effects of Multilateral Development Banks," The World Bank Economic Review, World Bank, vol. 35(2), pages 521-543.
    7. Küblböck, Karin & Grohs, Hannes, 2019. "Blended finance and its potential for development cooperation," Briefing Papers 21, Austrian Foundation for Development Research (ÖFSE).
    8. Briera, Thibault & Lefèvre, Julien, 2024. "Reducing the cost of capital through international climate finance to accelerate the renewable energy transition in developing countries," Energy Policy, Elsevier, vol. 188(C).
    9. Trung V. Vu, 2022. "Does institutional quality foster economic complexity? The fundamental drivers of productive capabilities," Empirical Economics, Springer, vol. 63(3), pages 1571-1604, September.
    10. Filewod, Ben & McCarney, Geoff, 2023. "Avoiding leakage from nature-based offsets by design," LSE Research Online Documents on Economics 117928, London School of Economics and Political Science, LSE Library.
    11. Inderst, Georg, 2021. "Financing Development: Private Capital Mobilization and Institutional Investors," EconStor Preprints 232266, ZBW - Leibniz Information Centre for Economics.
    12. Filewod, Ben & McCarney, Geoff, 2023. "Avoiding leakage from nature-based offsets by design," LSE Research Online Documents on Economics 117927, London School of Economics and Political Science, LSE Library.
    13. Tanja Havemann & Christine Negra & Fred Werneck, 2020. "Blended finance for agriculture: exploring the constraints and possibilities of combining financial instruments for sustainable transitions," Agriculture and Human Values, Springer;The Agriculture, Food, & Human Values Society (AFHVS), vol. 37(4), pages 1281-1292, December.

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    More about this item

    Keywords

    Development Finance Institutions; Investment; Additionality; Simulation;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations

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