Developing Asia’s Sovereign Wealth Funds and Outward Foreign Direct Investment

34 Pages Posted: 28 May 2010

See all articles by Donghyun Park

Donghyun Park

Asian Development Bank - Economic Research

Gemma Bolotaulo Estrada

Asian Development Bank - Economic Research

Date Written: August 1, 2009

Abstract

Sovereign wealth funds (SWFs) have emerged in developing Asia as a policy response to an unprecedented accumulation of foreign exchange (FX) reserves since 2000. At the same time, developing countries have become an increasingly important source of outward foreign direct investment (FDI). The central objective of this paper is to evaluate the prospects for SWFs to serve as a major conduit for the region’s outward FDI. In principle, FDI represents an attractive means of earning higher returns on FX reserves than traditional reserve assets. In practice, the limited institutional capacity and the political sensitivity of state-led FDI severely constrains the ability of developing Asia’s SWFs to undertake FDI on a significant scale. Therefore, the potential for developing Asia’s SWFs to become major sources of outward FDI is more apparent than real. This paper also explores the implications of the Santiago Principles and the global financial crisis on outward FDI by SWFs.

Keywords: Sovereign wealth fund, FDI, capital flows, foreign exchange reserves, Asia

JEL Classification: F21, F23

Suggested Citation

Park, Donghyun and Estrada, Gemma Bolotaulo, Developing Asia’s Sovereign Wealth Funds and Outward Foreign Direct Investment (August 1, 2009). Asian Development Bank Economics Working Paper Series No. 169, Available at SSRN: https://ssrn.com/abstract=1616970 or http://dx.doi.org/10.2139/ssrn.1616970

Donghyun Park (Contact Author)

Asian Development Bank - Economic Research ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

Gemma Bolotaulo Estrada

Asian Development Bank - Economic Research ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

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