SOVEREIGN WEALTH FUND AND GLOBAL ECONOMIC PERFORMANCES: AN EMPIRICAL INVESTIGATION TABLE OF CONTENT CHAPTER ONE: INTRODUCTION 1.1 Background of the Study 1.2 Statement of Research Problem 1.3 Objective of the Study 1.5 Scope of the Study 1.6 Significance of the Study CHAPTER TWO: LITERATURE REVIEW 2.0 Introduction 2.1 The Concept of Sovereign Wealth Fund 2.1.1 Classification of Sovereign Wealth Fund 2.1.2 Commodity Sovereign Wealth Fund 2.1.3 Non-Commodity Sovereign Wealth Fund 2.1.4 Objectives Based Classification Sovereign Wealth Fund 2.2 Brief History of Sovereign Wealth Fund 2.3 Sovereign Wealth Fund: Recent Development 2.4 Global Energy Market: Oil Price Volatility 2.5 Sovereign Wealth Fund and Global Energy Market 26 2.6 Theories Relating To Sovereign Wealth Fund 2.7 Empirical Review CHAPTER THREE: RESEARCH METHODOLOGY 3.1 Introduction 3.2 Research Design 3.3 Population and Sampling 3.4 Identification of Variables 3.5 Model Specification 3.6 Method of Data Collection 3.7 Method of Data Analysis CHAPTER FOUR: PRESENTATION, ANALYSIS OF DATA AND DISCUSSION OF RESULTS 4.0 Introduction 4.1 Descriptive Statistics 4.2 Test For Stationarity And Co-Integration Test Empirical Results And Preliminary Analysis The Impact of Global Oil Prices on Sovereign Wealth Funds Impact Assessment of the independent variables on the Dependent variable Multi-Colinearity Test CHAPTER FIVE: Summary Of Findings, Recommendations And Conclusion References Appendices CHAPTER ONE INTRODUCTION BACKGROUND OF THE STUDY The global economy had witness strong and healthy expansion lately with the emergence of many market economies and the huge amount of foreign exchange reserve accumulated by countries exporting goods and services. The management of the accumulated reserve led to the introduction of important financial actors which is the sovereign wealth fund. The sovereign wealth funds (SWF) have been around for over ten years but was not known until Andrew (2005) of State Street Global Advisors introduce an article titled Who Holds the Wealth of Nations. One of the factors that contributed to the complexity of the fund is that there is no generally accepted definition. The sovereign wealth fund lately has gravitated to the major focus of dialogue within the political parlance and investment environment. Sovereign wealth fund are funds belonging to the government or public but not the private sector. Most of the government dialogue surrounding the fund focuses on the phobia which the accommodating nations might show. Summer and Truman (2007) states that such fund posed political threat. Nuno (2009) and Balding (2008) states also that there is a scant evidence to defend such position. The first sovereign wealth funds (SWFs) was formed in the 1950s by oil resources manufacturing nations(the Kuwait investment board) and started operation in 1953 to assist them in stabilizing their economies against unstable commodity prices, investment reserve corporation whose assets still count as reserve assets, and are created to increase reserves earnings, fund development which assist socio-economic fund projects and aid industrial policies that might raise the potential growth in output of a country and to provide a wealth creating sources for the generations to come. Recently, sovereign wealth fund has sustain extra ordinary growth and it contribution had been made known to all the countries involved globally. The resources of the sovereign wealth fund put together is presently quoted at $3.22 trillion and the international monetary fund (IMF) estimated that they will continue to grow up to$10 trillion by 2012. Forecasters recently speculated that there will be a strong and healthy expansion in countries trying to make it industry and economic system more advanced with the coming together of other economies such as Asian, united state etc. showing the way out of recession globally while the advanced nation will keep struggling with weak and unhealthy circumstances and there would be no strong desire by the central authority to increase the rate of interest at a later date. Besides, the disagreement in the interest rate is anticipated to broaden the chance that manufactures the returns and growth that cannot be continued at the same level, rate etc. of capital flowing to countries trying to make it system more advanced (developing countries and developed market economy advanced economy) influencing more capital injection into emerging markets which in turn worsen the rate of exchange. Sovereign wealth fund promote and aid the world mobilization of credit and wealth from nations that has more than enough wealth or capital to companies that requires that wealth, increase the chances of obtaining wealth for private and public limited company at an interest rate that is low which in turns expand the financing for which investment is required. In spite of the important and growing functions of the sovereign wealth fund, economist who had expertise in finance committed infinitesimal interest in the fund. There are two fundamental purpose of paying attention to these funds. The first purpose is inherent in the rightward expansion of goods and services specifically the constant expansion in oil price that started in 2002. The constant increase in the oil price formed an unknown hierarchy of financing the source for the fund which later metamorphoses into a constant and a huge rate of expansion in property under control of the fund. The second purpose is inherent in the behaviour of the fund. The growth of sovereign wealth funds introduce various problem and as a result of these, governments in international market integrated sovereign wealth fund into the policy formulation of domestic nations with sovereign the fund and how their investments might affect host countries with small markets. Arising from the preceding statement, this research work seeks to x-ray the relationship between sovereign wealth fund and global oil price, per-capita income and the rate of exchange in the international market. Upon the above background, the following research questions were raised: Is it possible for any relationship to exist between sovereign wealth fund and global oil price? Does any relationship exist between Global Industrial Outputs/Index in international market and the sovereign wealth fund? What relationship exists between the sovereign wealth fund and Gross Fixed Capital Formation of countries having Fund? 1.2 STATEMENT OF RESEARCH PROBLEM One of the fundamental problems of sovereign wealth fund is that it often shows the evidence of being a `black box` where funds are kept in a non-transparent fashion. The lack of openness of the fund may lead to state phobia in the market forces and less sufficient to discipline of sovereign wealth fund to employ unimportant laws. The laws may have the ability to decrease the fund that are meant for owners of many business as well as corporation which in turn slowdown the capability of the financial market or arrangement to come out of the crisis associated with liquidity (ability to meet maturing obligation). Sovereign wealth funds also have the potential of posing a threat to emerging market economies due to the lack of proper regulatory frameworks and leading strategic business unit of companies in the country. Some school of thought proposed that the inability of the sovereign wealth fund to show their investment techniques and the measure taken for evaluating performance may result in the complexity of the participant in the market to make proper judgement .Examples of the participant includes central bank, brokers, investors etc. Sovereign wealth fund also face several other problems on how best to cope with the lack of transparency which can allow others to imitate their investment strategies. 1.3 OBJECTIVE OF THE STUDY The major purpose of this research work is to test the sovereign wealth fund and the global energy. Others include; To deduce the relationship between sovereign wealth fund and global oil price To examine the Link between sovereign wealth fund and Global Industrial outputs. To scrutinize the association between the sovereign wealth fund and Gross Fixed Capital Formation. 1.4 RESEARCH HYPOTHESES This research work put into consideration the null hypothesis to answer the research question 1. There is no possible relationship between global oil price and the sovereign wealth fund. 2. There is no relationship between sovereign wealth fund and Global Industrial outputs. 3. There is no relationship between sovereign wealth fund and Gross Fixed Capital Formation. 1.5 SCOPE OF THE STUDY The scope of this research work centres on the sovereign wealth fund among the countries involved in the fund as well as global the global oil price. It also sought to cover the period of 2007-2015. 1.6 SIGNIFICANCE OF THE STUDY The significance of this study is that it will afford the regulatory bodies and agencies of government in various countries the opportunity to check the growth of sovereign wealth fund globally. The study will also assist owners of financial interest in different oil companies as well as investment forecasters to monitor their investment. Lastly it will be useful in the academic setting and also in related research work to be carried out by other researchers.
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