Emergence of sovereign wealth funds

In this paper we show that domestic economic and political characteristics can explain why some countries established a Sovereign Wealth Funds (SWFs) and others not. We find that 1) the existence of natural resources profits, 2) the government structure and 3) the ability to invest in a socially beneficial way in the domestic economy can explain this choice. At the same time these same factors do not relate to the size of the national savings. We use a sample of countries that established a SWF in the period 1998-2008 and compare them to those that did not set up a fund in the same period. The results suggest that SWFs tend to be established in autocratically run countries that have difficulties finding suitable opportunities for domestic investments.