diff --git a/simgear/scene/material/Effect.hxx b/simgear/scene/material/Effect.hxx
index 438533a3..7bd0258f 100644
--- a/simgear/scene/material/Effect.hxx
+++ b/simgear/scene/material/Effect.hxx
@@ -160,7 +160,8 @@ size_t hash_value(const Effect::Key&);
 
 Effect* makeEffect(const std::string& name,
                    bool realizeTechniques,
-                   const SGReaderWriterOptions* options);
+                   const SGReaderWriterOptions* options,
+                   const SGPath& modelPath = SGPath{});
 
 Effect* makeEffect(SGPropertyNode* prop,
                    bool realizeTechniques,
diff --git a/simgear/scene/material/makeEffect.cxx b/simgear/scene/material/makeEffect.cxx
index 2c67f93e..9855f371 100644
--- a/simgear/scene/material/makeEffect.cxx
+++ b/simgear/scene/material/makeEffect.cxx
@@ -104,7 +104,8 @@ void mergePropertyTrees(SGPropertyNode* resultNode,
 
 Effect* makeEffect(const string& name,
                    bool realizeTechniques,
-                   const SGReaderWriterOptions* options)
+                   const SGReaderWriterOptions* options,
+                   const SGPath& modelPath)
 {
     {
         OpenThreads::ScopedLock<OpenThreads::ReentrantMutex> lock(effectMutex);
@@ -115,8 +116,7 @@ Effect* makeEffect(const string& name,
     }
     string effectFileName(name);
     effectFileName += ".eff";
-    string absFileName
-        = SGModelLib::findDataFile(effectFileName, options);
+    string absFileName = SGModelLib::findDataFile(effectFileName, options, modelPath);
     if (absFileName.empty()) {
         simgear::reportFailure(simgear::LoadFailure::NotFound, simgear::ErrorCode::LoadEffectsShaders, "Couldn't find Effect:" + effectFileName);
         return nullptr;
@@ -187,7 +187,7 @@ Effect* makeEffect(SGPropertyNode* prop,
     Effect* parent = 0;
     if (inheritProp) {
         //prop->removeChild("inherits-from");
-        parent = makeEffect(inheritProp->getStringValue(), false, options);
+        parent = makeEffect(inheritProp->getStringValue(), false, options, filePath);
         if (parent) {
             Effect::Key key;
             key.unmerged = prop;
diff --git a/simgear/scene/model/SGReaderWriterXML.cxx b/simgear/scene/model/SGReaderWriterXML.cxx
index c9297f26..c92173d4 100644
--- a/simgear/scene/model/SGReaderWriterXML.cxx
+++ b/simgear/scene/model/SGReaderWriterXML.cxx
@@ -800,8 +800,8 @@ sgLoad3DModel_internal(const SGPath& path,
     // Some material animations (eventually all) are actually effects.
     makeEffectAnimations(animation_nodes, effect_nodes);
     {
-        ref_ptr<Node> modelWithEffects
-            = instantiateEffects(group.get(), effect_nodes, options.get());
+        ref_ptr<Node> modelWithEffects = instantiateEffects(group.get(), effect_nodes, options.get(),
+                                                            path.dirPath());
         group = static_cast<Group*>(modelWithEffects.get());
     }
 
diff --git a/simgear/scene/model/model.cxx b/simgear/scene/model/model.cxx
index cd2fc8f1..db348f92 100644
--- a/simgear/scene/model/model.cxx
+++ b/simgear/scene/model/model.cxx
@@ -218,7 +218,7 @@ public:
     typedef std::map<string, SGPropertyNode_ptr> EffectMap;
     using SplicingVisitor::apply;
     MakeEffectVisitor(const SGReaderWriterOptions* options = 0)
-        : _options(options)
+        : _options(options), _modelPath(SGPath{})
     {
     }
     virtual void apply(osg::Group& node);
@@ -230,10 +230,17 @@ public:
         _currentEffectParent = effect;
     }
     SGPropertyNode* getDefaultEffect() { return _currentEffectParent; }
+
+    void setModelPath(const SGPath& p)
+    {
+        _modelPath = p;
+    }
+
 protected:
     EffectMap _effectMap;
     SGPropertyNode_ptr _currentEffectParent;
     osg::ref_ptr<const SGReaderWriterOptions> _options;
+    SGPath _modelPath;
 };
 
 void MakeEffectVisitor::apply(osg::Group& node)
@@ -271,7 +278,7 @@ void MakeEffectVisitor::apply(osg::Geode& geode)
     makeParametersFromStateSet(ssRoot, ss);
     SGPropertyNode_ptr effectRoot = new SGPropertyNode;
     effect::mergePropertyTrees(effectRoot, ssRoot, _currentEffectParent);
-    Effect* effect = makeEffect(effectRoot, true, _options.get());
+    Effect* effect = makeEffect(effectRoot, true, _options.get(), _modelPath);
     EffectGeode* eg = dynamic_cast<EffectGeode*>(&geode);
     if (eg) {
         eg->setEffect(effect);
@@ -316,7 +323,8 @@ protected:
 
 ref_ptr<Node> instantiateEffects(osg::Node* modelGroup,
                                  PropertyList& effectProps,
-                                 const SGReaderWriterOptions* options)
+                                 const SGReaderWriterOptions* options,
+                                 const SGPath& modelPath)
 {
     SGPropertyNode_ptr defaultEffectPropRoot;
     MakeEffectVisitor visitor(options);
@@ -341,13 +349,15 @@ ref_ptr<Node> instantiateEffects(osg::Node* modelGroup,
     if (!defaultEffectPropRoot)
         defaultEffectPropRoot = DefaultEffect::instance()->getEffect();
     visitor.setDefaultEffect(defaultEffectPropRoot.ptr());
+    visitor.setModelPath(modelPath);
     modelGroup->accept(visitor);
     osg::NodeList& result = visitor.getResults();
     return ref_ptr<Node>(result[0].get());
 }
 
 ref_ptr<Node> instantiateMaterialEffects(osg::Node* modelGroup,
-                                        const SGReaderWriterOptions* options)
+                                         const SGReaderWriterOptions* options,
+                                         const SGPath& modelPath)
 {
 
     SGPropertyNode_ptr effect;
@@ -373,7 +383,7 @@ ref_ptr<Node> instantiateMaterialEffects(osg::Node* modelGroup,
 
     effect->addChild("default")->setBoolValue(true);
     effectProps.push_back(effect);
-    return instantiateEffects(modelGroup, effectProps, options);
+    return instantiateEffects(modelGroup, effectProps, options, modelPath);
 }
 
 }
diff --git a/simgear/scene/model/model.hxx b/simgear/scene/model/model.hxx
index 4e719527..3f747859 100644
--- a/simgear/scene/model/model.hxx
+++ b/simgear/scene/model/model.hxx
@@ -102,7 +102,8 @@ public:
 osg::ref_ptr<osg::Node>
 instantiateEffects(osg::Node* model,
                    PropertyList& effectProps,
-                   const SGReaderWriterOptions* options);
+                   const SGReaderWriterOptions* options,
+                   const SGPath& currentDir = SGPath{});
 
 /**
  * Apply a set of material-defined effects to a model
@@ -112,9 +113,10 @@ instantiateEffects(osg::Node* model,
  *
  * returns a copy if any nodes are changed
  */
- osg::ref_ptr<osg::Node>
- instantiateMaterialEffects(osg::Node* model,
-                    const SGReaderWriterOptions* options);
+osg::ref_ptr<osg::Node>
+instantiateMaterialEffects(osg::Node* model,
+                           const SGReaderWriterOptions* options,
+                           const SGPath& modelPath = SGPath{});
 
 /**
  * Transform an OSG subgraph by substituting the Effects and
@@ -127,10 +129,11 @@ instantiateEffects(osg::Node* model,
 
 inline osg::ref_ptr<osg::Node>
 instantiateEffects(osg::Node* model,
-                   const SGReaderWriterOptions* options)
+                   const SGReaderWriterOptions* options,
+                   const SGPath& currentDir = SGPath{})
 {
     PropertyList effectProps;
-    return instantiateEffects(model, effectProps, options);
+    return instantiateEffects(model, effectProps, options, currentDir);
 }
 }
 #endif // __MODEL_HXX