Fashions and Fads in Finance: Contingent Emulation and the Political Economy of Sovereign Wealth Fund Creation

33 Pages Posted: 19 Jul 2010 Last revised: 31 Aug 2012

See all articles by Jeffrey M. Chwieroth

Jeffrey M. Chwieroth

London School of Economics & Political Science (LSE)

Date Written: 2010

Abstract

Sovereign wealth funds (SWFs) have proliferated at a remarkable rate over the past decade, even as political controversy has surrounded them. Why? The extant literature depicts the process of SWF creation as driven by functional imperatives associated with “excess” revenue and reserves accumulated from commodity booms and large current account surpluses. I argue that SWF creation also reflects a process of contingent emulation in which first creating a SWF was constructed as appropriate for countries with given characteristics, and then when countries took on these characteristics, they followed their peers. Put simply, fashions and fads in finance matter for policy diffusion. I assess this argument using a new dataset on SWF creation that covers nearly 80 countries from 1984 to 2007. The results suggest peer-based contingent emulation has been a crucial factor shaping the decision of many countries to create a SWF, especially among fuel exporters.

Keywords: Sovereign Wealth Funds, Diffusion, Norms

Suggested Citation

Chwieroth, Jeffrey M., Fashions and Fads in Finance: Contingent Emulation and the Political Economy of Sovereign Wealth Fund Creation (2010). APSA 2010 Annual Meeting Paper, Available at SSRN: https://ssrn.com/abstract=1643861

Jeffrey M. Chwieroth (Contact Author)

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
282
Abstract Views
1,658
Rank
205,371
PlumX Metrics