Politics, History, and Strategy: Evidence from Sovereign Wealth Fund Establishment and Individual Decision-making

Abstract

In an era of rising geopolitical rivalry, resurgent state capitalism, the occurrence of dyadic conflicts, and growing international sanctions, understanding how politics and history shape strategic behavior and decisions becomes more significant than ever. Nonetheless, strategic management and international business research still need to understand the mechanisms by which political and historical forces influence strategic behavior. This dissertation addresses this gap through two empirical studies. The first chapter investigates why some countries establish Sovereign Wealth Funds (SWFs) while others do not. Drawing on a panel dataset of over 190 countries from 1945 to 2023 and examining 90 SWF establishments, the empirical analysis shows that SWF formation incorporates political aspects besides financial aspects. Fiscal resource endowments, including natural resource exports, trade surpluses, and foreign reserve accumulation, are necessary but not sufficient conditions for SWF establishment. State capacity arises as an important determinant that reflects the government’s ability to design, establish, and govern this complex institutional vehicle. As a result, a resource-rich country without adequate state capacity will not be able to establish an SWF. Remarkably, sanctioned states are significantly more likely to establish SWFs, which suggests that economic statecraft accelerates the institutional development of state capitalism in targeted countries and could produce the opposite of its intended effect. These findings show that SWFs are not only a result of financial resources but also an incorporation of political economy institutions shaped by the interaction of resource endowments, state capacity, regime characteristics, and external political pressure. The second chapter examines whether the dyadic history between nations biases individual business decisions. Using a within-person experiment in which participants made repeated supplier-selection decisions involving countries with different dyadic conflict histories, the experimental results provide evidence that national-embedded animosity leads individuals to forgo higher-profit options when these options involved a supplier from a conflict nation. Nonetheless, the magnitude of this bias varies with temporal distance from the conflict, such that the old conflict shows the weakest while ongoing conflicts show the strongest impact on individual decisions, which is consistent with the collective memory argument that animosity diminishes as generational distance from the conflict increases. These findings extend the growing literature on animosity in strategic management research by investigating the impact of dyadic history on individual decision-making. Taken together, these two studies reveal that politics and history have systematic impacts on strategic decisions across different levels of analysis. At the macro level, state capacity, regime characteristics, and the response to external pressure determine whether the government can create this institutional vehicle. At the micro level, collective historical memory determines how individuals make their strategic decisions. Therefore, strategic management and international business research should consider the political and historical context when studying strategic behavior, as these aspects originate outside the firm and the market.