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Sovereign wealth funds: stumbling blocks or stepping stones to financial globalization?

Author

Listed:
  • Joshua Aizenman
  • Reuven Glick
Abstract
Sovereign wealth funds (SWFs) are saving funds controlled by sovereign governments that hold and manage foreign assets. Private analysts put current sovereign wealth fund assets in the range of $1.5 to 2.5 trillion. This amount is projected to grow sevenfold to $15 trillion in the next ten years, an amount larger than the current global stock of foreign reserves of about $5 trillion (Jen 2007). While not a new phenomenon, the recent activities and projected growth of SWFs have stirred debate about the extent to which their size may allow them to destabilize financial markets and their policies may be driven by political, rather than economic and financial, considerations. ; This Economic Letter gives an overview of the debate about the expanding role of SWFs in international financial markets. We explain the forces leading to their growth and the challenges they pose for financial globalization. While there is no quick fix to these challenges, encouraging SWFs to invest in well-diversified equity indexes in individual countries, such as the S&P 500 in the United States, may transform the role of these funds from stumbling blocks to stepping stones towards financial globalization.

Suggested Citation

  • Joshua Aizenman & Reuven Glick, 2007. "Sovereign wealth funds: stumbling blocks or stepping stones to financial globalization?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue dec14.
    • Handle: RePEc:fip:fedfel:y:2007:i:dec14:n:2007-38
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    References listed on IDEAS

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    1. Joshua Aizenman, 2008. "Large Hoarding Of International Reserves And The Emerging Global Economic Architecture," Manchester School, University of Manchester, vol. 76(5), pages 487-503, September.
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    Cited by:

    1. Jeanne Amar & Christelle Lecourt & Valerie Kinon, 2018. "Is the emergence of new sovereign wealth funds a fashion phenomenon?," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 154(4), pages 835-873, November.
    2. Ermanno Affuso & Khandokar M. Istiak & Alex Sharland, 2022. "Sovereign wealth funds and economic growth," Journal of Asset Management, Palgrave Macmillan, vol. 23(3), pages 201-214, May.
    3. Stephany Griffith-Jones & José Antonio Ocampo, 2009. "Sovereign Wealth Funds : a Developing Country Perspective," Revue d'Économie Financière, Programme National Persée, vol. 9(1), pages 241-254.
    4. Aizenman, Joshua & Glick, Reuven, 2008. "Sovereign Wealth Funds: Stylized Facts about their Determinants and Governance," Santa Cruz Department of Economics, Working Paper Series qt1fj4b203, Department of Economics, UC Santa Cruz.
    5. Aizenman, Joshua, 2008. "Relative price levels and current accounts: an exploration," Santa Cruz Department of Economics, Working Paper Series qt6w64k75x, Department of Economics, UC Santa Cruz.
    6. Aizenman , Joshua, 2008. "Relative Price Levels and Current Accounts: An Exploration," East Asian Economic Review, Korea Institute for International Economic Policy, vol. 12(2), pages 3-32, December.
    7. Joshua Aizenman & Reuven Glick, 2009. "Sovereign Wealth Funds: Stylized Facts about their Determinants and Governance," International Finance, Wiley Blackwell, vol. 12(3), pages 351-386, December.
    8. Sun, Jiayi & Demmler, Michael, 2009. "Sovereign Wealth Funds: Ein Branchenüberblick," Bayreuth Working Papers on Finance, Accounting and Taxation (FAcT-Papers) 2009-02, University of Bayreuth, Chair of Finance and Banking.
    9. Alhashel, Bader, 2015. "Sovereign Wealth Funds: A literature review," Journal of Economics and Business, Elsevier, vol. 78(C), pages 1-13.
    10. David M. Kemme & Bhavik Parikh & Tanja Steigner, 2021. "Inequality, autocracy, and sovereign funds as determinants of foreign portfolio equity flows," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 44(2), pages 249-278, June.
    11. Joshua Aizenman & Reuven Glick, 2010. "Asset Class Diversification and Delegation of Responsibilities between Central Banks and Sovereign Wealth Funds," NBER Working Papers 16392, National Bureau of Economic Research, Inc.
    12. Dariusz Urban, 2010. "Sovereign Wealth Funds – the New Challenge for Corporate Governance," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 4(3), October.
    13. Marco Mele, 2014. "On Asset Allocation’ Studies for Sovereign Wealth Funds," International Journal of Financial Economics, Research Academy of Social Sciences, vol. 2(4), pages 169-180.
    14. Stephany Griffith Jones & José Antonio Ocampo, 2009. "Les fonds souverains du point de vue des pays en développement," Revue d'Économie Financière, Programme National Persée, vol. 9(1), pages 259-274.

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