A0561
Title: Should resource rich countries launch a SWF? The key role of nation's income level and capital stock
Authors: Souhila Siagh - Aix-Marseille University (France) [presenting]
Abstract: The role of sovereign wealth funds (SWFs) is reexamined in neutralizing the Dutch disease effect. Specifically, the ability of SWFs is evaluated in reducing the volatility of real exchange rate misalignment (REER) for resource-rich countries, controlling for capital stock, income level as well as the other macro-control variables used in the related literature. Using a unique dataset covering 22 resource-rich countries over the period 1992-2019, the relation between SWF and REER is empirically shown to depend on the level of income and on the domestic capital stock. Using a descriptive country cluster analysis relative to income level and capital stock, it is found that SWFs are associated with higher misalignment of REER for low-income and capital-scarce countries. The results advocate adapting the management rules of the natural resource windfalls by taking into account the nation's capital stock and level of income.
