Sovereign Wealth Funds
A Developing Country Perspective - Working Paper #145
This paper analyzes the rationale for sovereign wealth funds and the implications for the world economy. It is divided in six sections, the first of which is the introduction. Section II details the evolution of foreign exchange assets in different parts of the developing world, the relative importance of the current vs. the capital accounts as the source of those assets, and discusses some categorizations of SWFs. In Section III we review the rapidly growing literature on the determinants of reserve accumulation in developing countries, emphasizing in particular the competitiveness vs. self-insurance motives for such accumulation, and briefly examine some of the literature on optimal reserves. In Section IV, we develop a broader framework for the analysis of the motives for the accumulation of foreign exchange assets, in which we clearly differentiate between the role played by the current and the capital accounts, and between the structural vs. cyclical determinants of such accounts, and raise some political economy issues associated with the nature and management of these funds. In section V, we analyze the systemic implications of the analysis for the global and regional financial architectures and in section VI we draw some conclusions.
About the Authors
Financial Markets Program Director
Initiative for Policy Dialogue (IPD)
Stephany Griffith-Jones is an economist specialising in international finance and development, with emphasis on reform of the international and national financial system, especially in relation to financial regulation and global governance. She is Financial Markets Director at the Initiative for Policy Dialogue, Columbia University. Previously she was Professorial Fellow at the Institute of Development Studies at Sussex University. She was Director of International Finance at the Commonwealth Secretariat and worked at UN DESA and ECLAC. She was senior consultant to governments in Eastern Europe, Latin America and Africa and many international agencies, including the World Bank, the IADB, the European Commission, UNDP and UNCTAD. She was a member of the Warwick Commission on financial regulation. She currently is theme leader on finance in the ESRC /DFID growth programme for LICs, especially African ones. She has published over 20 books and many scholarly and journalistic articles. Her books include Time for the Visible Hand, Lessons from the 2008 crisis, edited jointly with José Antonio Ocampo and Joseph Stiglitz.
José Antonio Ocampo
Professor of Professional Practice at Columbia University and former Minister of Finance of Colombia
Jose Antonio Ocampo is a Professor of Professional Practice in the School of International and Public Affairs and former Minister of Finance of Colombia. He is also a Fellow of the Committee on Global Thought at Columbia University. Prior to his appointment at Columbia, Professor Ocampo served as the United Nations Under-Secretary-General for Economic and Social Affairs, and head of UN Department of Economic and Social Affairs (DESA), as Executive Secretary of the UN Economic Commission for Latin America and the Caribbean (ECLAC), and has held a number of high-level posts in the Government of Colombia, including Minister of Finance and Public Credit, Director of the National Planning Department, and Minister of Agriculture . Professor Ocampo is author or editor of over 30 books and has published over 200 scholarly articles on macroeconomic theory and policy, international financial issues, economic development, international trade, and Colombian and Latin American economic history.