SWFs and the global economy: the impact of the Gulf oil producers

Abstract

PurposeThe purpose of this paper is to analyze the role of sovereign wealth funds (SWFs) in sustaining global economies. The subject of SWFs has increasingly garnered the concerns of policymakers, market players and scholars for two main reasons: First, these funds represent the largest concentration of capital that the world has ever known, with the Arabian Gulf SWFs becoming increasingly important global players, especially during the most recent financial crises. Second, there is the dominant role of national governments in the management of these colossal funds. This paper assesses the contrasting perspectives on SWFs and analyzes the role they can play in sustaining the global economy by engaging in foreign direct investment.Design/methodology/approachBoth descriptive analysis and comparative analysis are used.FindingsSWFs are large and tend to be long‐term investors and have characteristics that are compatible with foreign direct investment (FDI). There is a role for them in sustaining the global economy via FDI. This analysis suggests that only 11 percent of SWFs' investment in FDI is needed in order to counteract the forecast decline of FDI. Initiatives such as the recently established Santiago principles can help to allay the concerns of host and investor nations. This paper concludes that SWFs should be welcomed by market players and policy makers as tools of economic growth.Practical implicationsCurrent trends indicate that SWFs are playing an important role as a source of foreign investment, and are also reducing the impact of liquidity pressures in the international banking system. The main driving force of their investing in the global market is in securing higher returns. However, there has been unease among Western countries that have concerns that governments could use SWFs to seize control of strategic companies in sensitive sectors, for their own purposes.Originality/valueThe paper assesses the potential contribution of SWFs to FDI and highlights aspects related to fostering a code of conduct that can allay concerns around areas such as transparency, and the extent to which restrictions should be imposed by host governments.

Charity ethical investments in Norway and the UK

“…There is growing interest in the extent to which SWF's are used to pursue the national interests of sovereign shareholders over financial returns (Ng, 2010; 604 AAAJ 28,4 Lhaopadchan, 2010;Rios-Morales et al, 2011). We find evidence to suggest that, within the Norwegian context, the GPF, through the mimetic isomorphism of charities, reinforces a national set of values (DiMaggio and Powell, 1983;Souitaris et al, 2012).…”

“…In so doing, we contribute to the broader debate on the evolving regulatory mechanisms at work in the market. Our findings can be interpreted in relation to the emerging socio-political roles for charities and SWFs and the broader shift in the regulatory networks within which markets operate and are directed (Diamond, 2011;Ng, 2010;Lhaopadchan, 2010;Rios-Morales et al, 2011). We contend that understanding the practice of ethical investment is helpful for understanding the impact of the broader regulatory function of government, specifically in relation to the post-government shift towards guiding and governance.…”

“…SWFs have attracted considerable attention from policy makers and academics interested in understanding the economic impact of these large concentrations of capital on global markets (Costabile, 2011;Das, 2008;Rios-Morales et al, 2011). There is also growing interest in the extent to which these funds may be used to pursue the national interests of sovereign shareholders over and above financial returns (Ng, 2010;Lhaopadchan, 2010;Rios-Morales et al, 2011). SWFs have influenced firms they invest in and even government policy (Dewenter et al, 2010).…”

The impact and implications of SWFs: a systematic review of literature

“…Secondly, SWFs can empower emerging economies. SWFs can foster better regional integration among developing countries (Park and Rozanov, 2010) by investing in other neighbouring emerging economies and developing country owned development banks (Griffith-Jones and Ocampo, 2009;Rios-Morales et al, 2011). According to the estimates of Griffith-Jones and Ocampo (2009), if SWFs allocate even 1% of their assets to a developing country-owned development bank, it could generate a new lending capacity of around $70bn annually.…”