Bilateral political relations and the impact of sovereign wealth fund investment’, Working Paper

We examine the role of bilateral political relations in sovereign wealth fund (SWF) investment decisions. Our empirical results suggest that political relations play a role in SWF decision making. Contrary to predictions based on the FDI and political relations literature, we find that SWFs prefer to invest in nations with which they have relatively weaker political relations. This indicates that SWFs behave differently than other economic agents. Despite this observed difference, we find that, consistent with the FDI and political relations literature, SWF investment has a positive (negative) impact for relatively closed (open) countries. Our results indicate that SWFs use, at least partially, non-financial motives in investment decisions