In as much as Sovereign Wealth Funds (SWFs) are established to achieve national objectives, the intentions of the United Arab Emirates -- one of the world's largest -- are open to interpretation at home and in invested markets. As Emirati funds channeled through the likes of ADIA and Mubadala continue to increase their foreign investments (Valued at approx. $1Trillion), these state-backed groups have also bailed out financial institutions in the U.S. during the period of volatility. The extent to which these SWFs are helping develop the domestic standard of living rather than bailing out western companies and buying US treasury bonds is in question, and the focus of my project.
What is the effect of the United Arab Emirates' increasing sovereign wealth funds on GDP?
The project will rely on data compiled as of 2000, due both to availability and the period coinciding with the economic boom and crisis in the UAE. Regression report will analyze the relation between SWF growth as an independent variables, and GDP. Given that the majority of these funds have their origins in the sale of oil, and the same commodity constitutes the majority of exports, the analysis would need to extend to factoring in the price of oil. In addition, since GDP is only an indicator, rather than a measurement, of standard of living, multiple regressions will also cover the relation between SWFs and Real Income to compare effects.
The proposed project seeks to answer the question: What is the effect of the United Arab Emirates' increasing sovereign wealth funds on GDP? The focal point is to establish the extent to which SWFs are helping develop the domestic standard of living rather than bailing out western companies. The research suggests that while SWFs have a beneficial effect on foreign economies, the investments have not translated into adequate development domestically; and calling for a change in strategy.
1.1. The exploding increase of UAE SWFs since 2000, pre financial crisis.
1.2. The intention of SWFs to provide financial stability and development for future generations
1.3. A continuation of this trend during the economic crisis, even as the region was vulnerable and debts were incurred
Study the data compiled from 2000 to establish the relation between SWF and GDP, factoring in other dependent variables: Oil prices and Real Income.
2. Dramatic increase of UAE SWFs continuous trend since 2000.
2.1. From an initial strategy of development to becoming one of the world's largest SWFs
2.2. Documented benefit to US and European companies due to SWF bailouts
2.3. Little regulation and documentation of how generated funds are helping today's generation through the crisis.
2.3.1. Domestic investment in development is dwarfed by the size of SWFs
2.3.2 A strategy of SWFs to secure 'future' generation stability that did not take into account the economic crisis
3. GDP increase from 2000 to the end of the decade, but issues arise:
3.1. While GDP has increased over all the decade, its fluctuations during the crisis can be compared in parallel with fluctuating oil prices
3.2. Even while GDP has increased, real personal income as calculated per capita according to PPP has decreased.
3.2.1. Inflation attributed to the real estate bubble considered
3.2.2. lack of diversification in domestic development of sectors beyond real estate and oil despite increasing wealth of funds
3.3. A change in strategy since 2009 post-crisis.
4. Regression Analysis:
4.1. Increase in SWFs as independent variable in relation with GDP
4.2. Multiple regression taking into account comparable datasets:
4.1.1. Oil prices over the decade (as main export and determinant of GDP) in relation with Real GDP
4.1.2. Oil prices and volume of sales in relation with GDP per capita by PPP: opposite trajectories ten years after adjusting for inflation
4.1.3. SWF as independent variable in relation with GDP per capital by PPP: opposite trajectories over ten years after adjusting for inflation