Capitalizing Economic Development Through Sovereign Investment: A “Paradox of Scarcity”

by Patrick J. Schena, Juergen Braunstein, and Asim Ali

Traditionally the creation of sovereign wealth funds (SWFs) was “supply-driven,” the result of excess reserves from natural resources (e.g. Norway, Qatar, Kuwait, etc.) or non-commodity capital flows (e.g. South Korea, China, Singapore, etc.). More recently we observe many newly established or announced funds to be “demand-driven,” motivated by domestic development objectives (including  infrastructure development).  This transition from supply-driven to demand-driven SWF creation is most starkly manifested in SWF capitalization. This paper outlines recent developments on SWF creation – especially by countries that are neither endowed with oil wealth nor possess sizeable export surpluses to create SWFs with a development mandate. While contextualizing this study in the broader SWF literature, the aim is to provide a comprehensive overview on how funding sources impact achieving long-term financial and socio-economic development objectives.

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