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Emergence of Sovereign Wealth Funds

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  • J-F Carpantier
  • W N Vermeulen

Abstract

This paper tests the theoretically founded hypothesis that the surge of SWF establishments is determined by three main factors: 1) the existence of natural resources profits, 2) the government structure and 3) the ability to invest usefully in the domestic economy. We test this hypothesis on a sample of 20 countries that established an SWF in the period 1998-2008 by comparing them to the roughly 100 countries that did not set up a fund in the same period. We find evidence for all three factors. The results suggest that SWFs tend to be established in countries that run an autocratic regime and have difficulties finding suitable opportunities for domestic investments. We do not find the net foreign asset position of a country to be similarly related to the explanatory variables, indicating that the establishment of an SWF is distinct from a national accounting result. We argue that our results indicate that it is relevant to study how an SWF interacts with the domestic economy and government policy.

Suggested Citation

  • J-F Carpantier & W N Vermeulen, 2014. "Emergence of Sovereign Wealth Funds," OxCarre Working Papers 148, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  • Handle: RePEc:oxf:oxcrwp:148
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    Cited by:

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    2. Jeanne Amar & Christelle Lecourt & Valerie Kinon, 2018. "Is the emergence of new sovereign wealth funds a fashion phenomenon?," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 154(4), pages 835-873, November.
    3. Grira, Jocelyn, 2020. "Back to government ownership: The Sovereign Wealth Funds phenomenon," Finance Research Letters, Elsevier, vol. 34(C).
    4. Megginson, William L. & Gao, Xuechen, 2020. "The state of research on sovereign wealth funds," Global Finance Journal, Elsevier, vol. 44(C).
    5. Gangi, Francesco & Mustilli, Mario & Varrone, Nicola & Graziano, Domenico, 2023. "Target firms’ characteristics and the effects of sovereign wealth funds’ investments: Does cultural context of SWFs matter?," Research in International Business and Finance, Elsevier, vol. 65(C).
    6. Gouett, Matthew, 2020. "New wealth, New wisdom: Updating the narrative of sovereign wealth fund creation," Resources Policy, Elsevier, vol. 65(C).
    7. Cody D. Eldredge, 2019. "Capability and need: A framework for understanding why states create sovereign wealth funds," The World Economy, Wiley Blackwell, vol. 42(5), pages 1495-1519, May.
    8. Heffron, Raphael J, 2018. "The application of distributive justice to energy taxation utilising sovereign wealth funds," Energy Policy, Elsevier, vol. 122(C), pages 649-654.

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    More about this item

    Keywords

    Sovereign Wealth Fund; Institutions; natural resources;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F39 - International Economics - - International Finance - - - Other
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education

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