The impact of a Sovereign Wealth Fund on the economy of the host nation.

Abstract

Sovereign Wealth Funds (SWFs) have enjoyed a great deal of public debate among scholars and policy makers alike in recent times. This increased attention can be associated with the swelling size and number of SWFs. In the last decade, there has been a sharp increase in the number of SWFs and they have become notable players in the world financial markets due to the soaring commodity prices and global imbalances. Currently, SWFs have more assets under management (in USD) than hedge funds. Buoyed on by the recent discoveries of natural resources in Africa and relatively high commodity prices, Africa has joined the international trend of SWF establishment and is home to nine SWFs, three of which were established between 2011 and 2012 alone. There is limited evidence and theory around the impact of SWFs on the economy of the host nation, mainly due to lack of transparency associated with SWFs. Supporters of SWFs claim that they have a positive effect on their host nation’s economies. Employing selected macroeconomic variables, this study looks at the impact of the introduction of a SWF on the host nation’s economy. Evidence shows a positive impact.