Beyond Money: How Local Government Partnerships Are Reshaping the Future of Development Aid

Decentralised development co-operation is expanding as cities and regions combine finance, technical expertise and peer learning to strengthen local governance, public services and sustainable development. The OECD says its impact could grow significantly with multi-year financing, better staffing, stronger monitoring and closer coordination among national governments, development partners and private investors.

The global development system is facing growing pressure as aid budgets tighten while cities and regions are being asked to solve increasingly complex problems involving climate change, infrastructure, inequality and public services. The OECD's 2026 report The Impact of Decentralised Development Co-operation: Driving Local Governance and the SDGs finds that development partnerships led by local and regional governments can provide an important additional channel for financing, technical expertise and institutional learning. The study draws on surveys of 102 local and regional governments across 10 OECD Development Assistance Committee countries and 79 partner governments across 33 ODA-eligible countries, supported by 16 case studies and quantitative analysis.

Can Local Governments Become a Bigger Force in Global Development?

The case for decentralised development co-operation, or DDC, is becoming stronger as conventional development finance comes under pressure. Official development assistance declined by 23.1% in 2025. Meanwhile, reported DDC ODA more than doubled between 2013 and 2024, rising from about USD 1.8 billion to USD 3.6 billion.

But DDC is about more than transferring money. Nearly 75% of surveyed projects include non-financial activities such as technical assistance, capacity building, peer-to-peer learning, staff exchanges and study visits. These partnerships allow cities with practical experience in water, waste management, transport, climate adaptation and public administration to share solutions directly with other local governments.

For development partners, this offers a way to combine financing with specialised local expertise. For governments, it can strengthen institutions that ultimately determine whether development investments produce lasting results.

Where Could the Economic and Development Gains Come From?

The OECD finds encouraging evidence that DDC is reaching territories where development needs are significant. Within recipient countries, cross-border DDC tends to be directed towards regions with lower income per capita. Statistical analysis also identifies associations between DDC and income growth in recipient regions, greater urban green space and improvements in transport-related emissions. The OECD cautions that these relationships do not establish causation, but they indicate areas where DDC may be contributing to measurable development outcomes.

Potential benefits extend to governance. Partner local governments report improvements in participation, accountability and administrative capacity, while provider cities and regions identify gains from knowledge exchange, policy innovation and stronger institutional coordination.

This matters economically because stronger local institutions can improve how public investment is planned and managed. DDC projects that strengthen tax administration, revenue collection and expenditure management could also help municipalities develop investment roadmaps and eventually attract private and institutional capital.

For businesses involved in urban infrastructure, water, mobility, waste management, digital services and climate-resilient development, stronger municipal capacity could create better conditions for investment. However, weak institutions, fragmented projects and unpredictable financing remain significant risks.

Why Are Staffing, Funding and Measurement Holding DDC Back?

The biggest obstacle is not necessarily a lack of ideas. It is the capacity to implement them. Only 19% of surveyed partnerships report adequate staffing on both sides, and many municipalities do not have dedicated international development teams. Employees therefore often manage DDC programmes alongside their normal responsibilities.

Measurement is another major weakness. More than 60% of local and regional governments assess their DDC activities to some extent, but only 17% of partnerships conduct systematic assessments at both ends. This makes it difficult for governments and development institutions to determine which programmes deliver the strongest results.

Data on financing are similarly incomplete. Only 15 of the 34 DAC members report DDC ODA, meaning existing statistics underestimate the scale of activity and provide limited information about which cities and regions ultimately receive support.

National governments can help address these gaps. Among surveyed DAC-country respondents, 55% operate under a dedicated national DDC framework or law, 56% benefit from national co-financing and 68% rely on national funding support.

How Can Governments Turn Local Partnerships Into Lasting Investment?

The OECD recommends moving away from fragmented short-term projects toward multi-year, flexible and diversified financing. Smaller municipalities could be supported through pooled funding, shared administrative services, technical assistance and easier access to national and multilateral financing programmes.

Development agencies should treat technical assistance, staff exchanges and peer learning as core development instruments rather than secondary activities. National governments can provide common monitoring frameworks while allowing indicators to be adapted to local circumstances.

Reporting also needs modernisation. The OECD recommends systematically identifying the cities and regions providing and receiving DDC support, simplifying digital reporting and using technologies such as text analysis and artificial intelligence to improve geographic information in project databases.

For policymakers, development partners and private investors, the central message is clear: the value of DDC lies in combining finance with local expertise, stronger institutions and investment readiness. If governments can provide predictable funding, adequate staffing, better data and credible monitoring, city-to-city and region-to-region partnerships could become a stronger tool for translating global development goals into practical local results.