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

SWFs and the global economy: the impact of the Gulf oil producers Purpose – The 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/approach – Both descriptive analysis and comparative analysis are used. Findings – SWFs 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 implications – Current 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/value – The 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. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png EuroMed Journal of Business Emerald Publishing

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

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Publisher
Emerald Publishing
Copyright
Copyright © 2011 Emerald Group Publishing Limited. All rights reserved.
ISSN
1450-2194
DOI
10.1108/14502191111151278
Publisher site
See Article on Publisher Site

Abstract

Purpose – The 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/approach – Both descriptive analysis and comparative analysis are used. Findings – SWFs 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 implications – Current 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/value – The 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.

Journal

EuroMed Journal of BusinessEmerald Publishing

Published: Jul 18, 2011

Keywords: SWF; FDI; Oil producers; Emerging markets; Rapid development economies; Wealth; International investments; Oil industry; World economy; Persian Gulf States

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