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Political Economy of Sovereign Wealth Funds in the Oil Exporting Countries of the Arab Region and Especially the Gulf

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  • Jeffrey B. Nugent

    () (University of Southern California)

  • Sara Bazoobandi

Abstract

In no other region of the world are Sovereign Wealth Funds (SWFs) as numerous, long-standing and diverse as in the Arab region. Unlike funds serving some of the same functions in other parts of the world, Arab SWFs are for the most part funds set up, and in many cases headed, by the sovereign heads of state or their family members. This paper traces their origin and their evolution over time in general terms, showing the role of environmental changes, such as those in oil prices, regional political changes (e.g. the Arab Spring) and individual country needs and priorities, and outlines a political economy model that helps to explain both the determinants and effects of SWF activities. Arab SWFs are shown to serve some six different functions, which vary from one SWF to another and over time. A central theme in the political economy framework is the notion of a social contract between the sovereign and the citizenry wherein the citizenry agrees to being excluded from information and management of the SWF in return for being assured of a reasonable standard of living. While a common characteristic of these SWFs prior to the global financial crisis was their extreme lack of transparency, the political economy model is drawn upon to explain why transparency may have been increasing in some SWFs but not others, and the possible consequences thereof. The paper concludes with some suggestions for improvement in both the Arab SWFs themselves and related policy reforms.

Suggested Citation

  • Jeffrey B. Nugent & Sara Bazoobandi, 2017. "Political Economy of Sovereign Wealth Funds in the Oil Exporting Countries of the Arab Region and Especially the Gulf," Working Papers 1143, Economic Research Forum, revised 10 May 2003.
  • Handle: RePEc:erg:wpaper:1143
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    References listed on IDEAS

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    1. Artur Grigoryan, 2016. "The ruling bargain: sovereign wealth funds in elite-dominated societies," Economics of Governance, Springer, vol. 17(2), pages 165-184, May.
    2. Alhashel, Bader, 2015. "Sovereign Wealth Funds: A literature review," Journal of Economics and Business, Elsevier, vol. 78(C), pages 1-13.
    3. Mitchell, Olivia S. & Piggott, John & Kumru, Cagri, 2008. "Managing public investment funds: best practices and new questions," Journal of Pension Economics and Finance, Cambridge University Press, vol. 7(03), pages 321-356, November.
    4. Gordon L. Clark & Adam D. Dixon & Ashby H. B. Monk, 2013. "Sovereign Wealth Funds: Legitimacy, Governance, and Global Power," Economics Books, Princeton University Press, edition 1, number 10003.
    5. Olivia S. Mitchell & John Piggott & Cagri Kumru, 2008. "Managing Public Investment Funds: Best Practices and New Challenges," NBER Working Papers 14078, National Bureau of Economic Research, Inc.
    6. Kotter, Jason & Lel, Ugur, 2011. "Friends or foes? Target selection decisions of sovereign wealth funds and their consequences," Journal of Financial Economics, Elsevier, vol. 101(2), pages 360-381, August.
    7. Antonio M. A. Pedro, 2016. "The country mining vision: towards a new deal," Mineral Economics, Springer;Raw Materials Group (RMG);LuleƄ University of Technology, vol. 29(1), pages 15-22, April.
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