When Clashes Spur Rules: Domestic Politics of Sovereign Wealth Funds Institutionalization

Abstract:     
Truman’s score shows a remarkable variation in whether Sovereign Wealth Funds (SWFs) institutionalize their investment. Some have explicit policies on fiscal treatment and investment behavior; others remain obscure. What explains these variations? This article argues that SWF host countries with multiple veto players are more institutionalized, i.e., have specified more “rules of game” for the SWFs because there are more conflicts of interests, and information asymmetries are more acute. This veto player approach to explaining variation in institutionalization of SWF investment is tested using Truman’s scoreboard data. The statistical analysis shows a strong correlation between the number of veto players and the institutionalization of SWF investment.

Number of Pages in PDF File: 22

Keywords: Sovereign Wealth Fund, Institutionalization, Veto players

working papers series