When Ngos Go Global: Competition on International Markets for Development Donations☆
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Journal of International Economics 79 (2009) 198–210 Contents lists available at ScienceDirect Journal of International Economics journal homepage: www.elsevier.com/locate/jie When NGOs go global: Competition on international markets for development donations☆ Gani Aldashev a,1, Thierry Verdier b,⁎ a University of Namur (FUNDP) and CRED, Belgium b Paris School of Economics, France, University of Southampton and CEPR, United Kingdom article info abstract Article history: Why are many large non-governmental organizations (NGOs) becoming multinational entities? What are Received 28 September 2007 the welfare implications of this integration of markets for development donations? To answer these Received in revised form 24 July 2009 questions, we build a simple two-country model with horizontally differentiated NGOs competing in Accepted 24 July 2009 fundraising. We find that NGOs become multinational if the economies of scale in fundraising are sufficiently large. In that case, national NGOs in the smaller country disappear, while some national NGOs remain in the Keywords: larger country only if country sizes are sufficiently different. Social welfare is higher in the regime with Non-governmental organizations multinationals than under autarky. Charitable giving Fundraising © 2009 Elsevier B.V. All rights reserved. Globalization Multinational firms JEL classifications: F23 L22 L31 1. Introduction the last decades: the globalization of the market for donations to charitable causes. While until relatively recently development- oriented non-governmental organizations (NGOs) raised funds in the countries where they had been founded, nowadays they heavily “Unlike smaller organizations, the transnational NGO can demon- rely on raising funds through their foreign affiliates. Table 1 shows strate quickly and effectively to several constituencies at once that statistics for some of the main global NGOs: the number of distinct its people are ‘on the ground’, responding to an emergency. CARE, country offices that conduct national fundraising campaigns goes for example, demonstrated simultaneously to television audiences from 10 (for CARE) to 65 (for World Vision). These organizations are in Britain, the United States, Canada and Australia that it was development heavyweights: their annual budgets are in the range of operational only days after the 1992 disaster ‘broke’ in Somalia — 600 to 2100 mln U.S. dollars. simply by changing the face and the accent in front of the camera” Concerning the timing of this phenomenon, Fig. 1 presents the (Smillie, 1995: 202). historical timeline of the globalization for three well-known NGOs: Plan International, Oxfam, and MSF. We see that the main surge in Along with increased international trade and investment flows, globalization (i.e., the opening of foreign affiliates) happened mainly another key market integration phenomenon has been happening in during the 1980s and 1990s. Geographical patterns behind this globalization phenomenon are ☆ The authors thank Jean-Marie Baland, Jean-Philippe Platteau, Jakob De Haan, Luca also quite interesting. Table 2 lists the MSF's affiliates and their years De Benedictis, an anonymous referee, Jonathan Eaton (the editor), and the participants of foundation. The first foreign affiliates are in Belgium, Switzerland, of the CEPR RTN Final Conference on Trade, Industrialization and Development (Paris), and the Netherlands, with other European affiliates following in the the World Meetings of Public Choice Societies (Amsterdam), and the seminars at Erasmus University Rotterdam, University of Urbino, and University of Rome III, for same decade. The first affiliate outside Europe is in the US, and in mid- useful suggestions. 1990s, the MSF expands its donor base into such exotic destinations as ⁎ Corresponding author. PSE, 48 Boulevard Jourdan, 75014 Paris, France. Tel.: the United Arab Emirates. +33143136308; fax: +33143136232. Why did these global NGOs emerge? Why did this phenomenon E-mail addresses: [email protected] (G. Aldashev), [email protected] (T. Verdier). develop mainly starting in the 1980s? What can explain the 1 Department of Economics, 8 Rempart de la Vierge, 5000 Namur, Belgium. geographical pattern of NGO globalization? And is this aid market 0022-1996/$ – see front matter © 2009 Elsevier B.V. All rights reserved. doi:10.1016/j.jinteco.2009.07.007 G. Aldashev, T. Verdier / Journal of International Economics 79 (2009) 198–210 199 Table 1 Table 2 Data on some of the main global NGOs. The MSF's affiliates and their years of foundation. Source: Lindenberg and Bryant (2001), Karajkov (2007), www.plan-international.org. Source: Simeant (2005). Organization Year Number of Total revenues, Main field Year Affiliate name of distinct 2006, US$ mln of operation 1971 France (headquarter) foundation country 1980 Belgium offices 1981 Switzerland PLAN 1937 17 595a Children's rights 1984 Netherlands International 1986 Luxemburg Save 1919 26 863 Children's rights Spain the Children 1990 Greece Oxfam 1942 13 528 Poverty relief United States International 1991 Canada CARE 1945 10 624 Poverty relief 1992 Japan World Vision 1950 65 2100 Religious charity 1993 Denmark Medecins Sans 1971 19 568 Medical Germany Frontieres (MSF) intervention in Italy distress Sweden Hong Kong a 2007. UK 1994 Australia Austria globalization good for beneficiaries and donors? This paper presents 1995 United Arab Emirates an economic analysis of this phenomenon which, to our knowledge, 1996 Norway has not been studied by economists so far. As Smillie (1995) points out in his poignant account of the devel- opment NGO sector, most big NGOs started out as a response from some Western country's activists to a particular disaster in a devel- The competition for funds has its downsides, as it may lead to the oping country. Initially such an NGO raised funds only in its country of “excessive fundraising” problem (Rose-Ackerman, 1982). She shows origin; however, soon it established affiliates in other developed that tougher competition between NGOs can be welfare-reducing countries, becoming an international entity, similar to a multinational because this induces NGOs to spend excessive portion of their budgets firm. for fundraising activities. Moreover, the equilibrium number of NGOs One well-known example is Oxfam. Oxfam UK was established in is too big compared to the social optimum. Great Britain in 1943 to provide relief after the Greek famine of the Thus, from an economist's point of view, the globalization of the same year. In 1960, it opened its Canadian affiliate, Oxfam Canada. NGO sector driven by competition for donations raises several im- Shortly, two more foreign affiliates, Community Aid Abroad (the portant questions. First, where does this globalization come from? Australian branch) and Oxfam New Zealand, were opened. Then fol- Second, what is the effect of NGO globalization on the fundraising and lowed the branches in continental Europe and Japan. The total production behavior of NGOs? Third, what are the welfare conse- number of affiliates now has reached 13. The return on these invest- quences of NGO globalization? ments was impressive. For instance, the initial investment to open the The answers to these questions can run counter to the standard Canadian branch cost 60000 pounds, and by 1970, this branch raised economic intuition. Although models of international trade with and sent 1.2 mln pounds overseas (Black, 1992). monopolistic competition suggest that welfare in a fully integrated The NGO practitioners suggest that a key reason behind this inter- market is higher than under autarky (Krugman, 1979), when it comes nationalization is domestic competition for donations. As Dichter (1999) to non-profit organizations such as NGOs the result is less obvious. points out, “New markets are aggressively tackled... NGOs have come up Gnaerig and MacCormack (1999) note that “the major national fund- against donor saturation in their home countries... By going to [foreign] raising markets have developed into international bazaars where one countries, the costs of recruiting new donors [are] lowered.” Moreover, as can find competitors from a range of countries offering everything the opening quote suggests, there might be increasing returns to scale in fund-raisers all over the world could think of. This looks like the running fundraising campaigns internationally. beginning of a very tough selection process — at the end of which Fig. 1. The globalization timeline of some major NGOs. 200 G. Aldashev, T. Verdier / Journal of International Economics 79 (2009) 198–210 there will probably be left only a handful of highly professional, global We characterize the free-entry equilibria under autarky and NGOs...” This reduction in the number of NGOs and restructuring of market integration via multinational NGOs. More precisely, we define the sector can imply a certain loss of welfare, in particular that of as autarky the regime in which national NGOs in either country can donors, who may find that globalization reduces the number of NGO raise funds only in their countries of origin. The regime of multi- varieties present on the market. national NGOs depicts the situation in which there exist international The market for development donations with NGOs has the fol- networks of NGOs which are attached to one specific mission lowing key characteristics: (project). The network can raise funds in either country, but it has to establish local affiliates (i.e., incur the additional fixed cost and hire • NGOs are differentiated.