Edited by Phoebus Athanassiou
Chapter 3: Sovereign-wealth Funds – A Paradigm Shift in Capital Flows in the Global Economy
Dilip K. Das* 7 INTRODUCTION Financial globalization has gained momentum in recent years. Over the last two decades the rate of increase in global cross-border investment was twice that of the rate of growth of multilateral trade in goods and services, which in turn exceeded the rate of global GDP growth (Lane and MilesiFerretti, 2006). State-owned and managed sovereign-wealth funds (SWFs) have played an increasingly important role in underpinning, sustaining and expanding financial globalization and in supporting financial diversification. At the same time, they have not escaped criticism over their activities, nor have they been spared losses on their investments since the onset of the global financial crisis. SWFs have grown considerably in significance in the course of the last few years. The global financial crisis has made of them a more visible group of investors, while their participation in global financial markets appeared likely to grow in importance for as long as inflows from trade surpluses and commodity exports continued (IFS, 2010). At the same time, given their limited disclosure and lack of transparency, SWFs have prompted economic nationalists to threaten with a protectionist backlash. Pre-crisis, threats of financial protectionism had been mounting in proportion to the increase in their global investments. As a result, despite being significant liquidity-enhancing and financial resource allocation agents, SWFs had also become the focus of a controversy, with both public and private sector policy conclaves expressing concerns over their activities, reflecting on how to reconcile the policy measures necessary to keep them in...
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