Clientelism and Autocratic Sovereign Wealth Funds

• In Event: IPE and Authoritarianism

Abstract

While autocracies have recently become key sponsors of sovereign wealth funds (SWFs), it is still puzzling why SWFs are welcomed by autocracies. What determines the creation of SWFs by authoritarian regimes? This paper suggests that the creation of the funds depends on the level of clientelism. Although autocratic regimes need to invest financial resources in SWFs and receive financial benefits from the funds in the relatively far future, they also enjoy short-term political benefits when they have the capability to provide targeted and excludable benefits to their supporters. Autocratic regimes can resolve commitment problems by establishing highly institutionalized investment vehicles and giving their supporters exclusive access to the funds. If the regimes lack clientelist relationships with their supporters, they are likely to face internal resistance while creating the funds. To examine the association between clientelism and the creation of autocratic SWFs, I use the measure of the clientelistic nature of the ruling party from the V-party dataset and employ survival analysis on a global sample of autocratic regimes from 1960-2010. I find that the more clientelistic the autocratic ruling party is, the more likely it is to create SWFs.

Author

• Joon Hyeok Lee, Yale University