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Developing Asia's Sovereign Wealth Funds and Outward Foreign Direct Investment

Donghyun Park () and Gemma Estrada ()

No 169, ADB Economics Working Paper Series from Asian Development Bank

Abstract: Sovereign wealth funds (SWFs) have emerged in developing Asia as a policy response to an unprecedented accumulation of foreign exchange (FX) reserves since 2000. At the same time, developing countries have become an increasingly important source of outward foreign direct investment (FDI). The central objective of this paper is to evaluate the prospects for SWFs to serve as a major conduit for the region’s outward FDI. In principle, FDI represents an attractive means of earning higher returns on FX reserves than traditional reserve assets. In practice, the limited institutional capacity and the political sensitivity of state-led FDI severely constrains the ability of developing Asia’s SWFs to undertake FDI on a significant scale. Therefore, the potential for developing Asia’s SWFs to become major sources of outward FDI is more apparent than real. This paper also explores the implications of the Santiago Principles and the global financial crisis on outward FDI by SWFs.

Keywords: Sovereign wealth fund; FDI; capital flows; foreign exchange reserves; Asia (search for similar items in EconPapers)
JEL-codes: F21 F23 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2009-08
New Economics Papers: this item is included in nep-ifn
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