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Fashions and fads in finance: the political foundations of sovereign wealth fund creation

Chwieroth, Jeffrey M. (2014) Fashions and fads in finance: the political foundations of sovereign wealth fund creation. International Studies Quarterly . n/a-n/a. ISSN 0020-8833 (In Press)

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Abstract

What accounts for the spread of Sovereign Wealth Funds (SWFs)? Despite the increasing importance of SWFs in the global economy, we lack persuasive systematic answers to that question. Most analysts take for granted that economic imperatives drive the creation of SWFs; governments create them as effective solutions to the challenges generated by reserve accumulation and commodity-export specialization. In this article, I argue that the evidence fails to support this theory. Instead, the spread of SWFs best resembles the diffusion of a fashion or fad. SWFs became fashionable as an appropriate approach for reserve- and resource-rich countries seeking to manage policy uncertainty related to these economic characteristics. As other countries developed the same characteristics, they followed the lead of their peers and also created SWFs. I provide, with the use of a new data set, the first cross-national political-economy statistical analysis of SWF creation. The results suggest peer group emulation has, indeed, been crucial in shaping the decision of many countries to create SWFs-especially in fuel-exporting countries.

Item Type: Article
Official URL: http://onlinelibrary.wiley.com/
Additional Information: © 2014 International Studies Association
Library of Congress subject classification: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HJ Public Finance
Journal of Economic Literature Classification System: G - Financial Economics > G2 - Financial Institutions and Services > G20 - General
Sets: Departments > International Relations
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Funders: Research Committee of the London School of Economics
Date Deposited: 08 Jul 2014 11:45
URL: http://eprints.lse.ac.uk/57522/

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