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Is the emergence of new sovereign wealth funds a fashion phenomenon?

Jeanne Amar (), Christelle Lecourt () and Valerie Kinon ()
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Christelle Lecourt: Aix-Marseille University, CNRS, EHESS, Centrale Marseille, AMSE
Valerie Kinon: ICHEC Brussels Management School

Review of World Economics (Weltwirtschaftliches Archiv), 2018, vol. 154, issue 4, 835-873

Abstract: Abstract The paper deals with the important financial policy issue of the decision for a country to establish a sovereign wealth fund (SWF). Using a large-scale database, we analyze the economic, political and institutional factors that should be considered in such a decision. In particular, we test if the emergence of SWFs and more specifically of a specific type of SWFs can be explained by the following factors: the excess foreign exchange reserves due to natural resources rents or persistent current account surpluses; the volatility of commodity prices; the appreciation of the real exchange rate leading to the “Dutch Disease” effect and the governance of the country. The results suggest that countries with excess foreign exchange reserves, which are dependent on a commodity and which suffer from an appreciation of the real exchange rate are more likely to create a fund. We also find that commodity-based funds tend to be established in low democratic countries. Finally, our results suggest that the factors driving SWFs creation are different depending on the origin of the funding (commodity or non-commodity) and the macroeconomic objective(s) assigned to the fund. Our results may be of interest for policymakers debating whether or not it can be optimal for the country to establish a SWF.

Keywords: Sovereign wealth funds; Natural resources rents; Country factors; Logit panel model (search for similar items in EconPapers)
JEL-codes: E21 E61 G23 F39 H59 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:spr:weltar:v:154:y:2018:i:4:d:10.1007_s10290-018-0319-3