Advanced Economies and Emerging Markets

CHAPTER 13

Coping with Political and Economic Risks

Overview

We hope we have adequately conveyed that diversification in global trading benefits international business investments, especially in emerging markets, which have become a prominent feature of the financial globalization sweeping the world over the last decade. Investing in emerging markets, however, exposes companies and investors to political environments that are not typically present in advanced economies.

Over the past two decades, we have witnessed Russian default on its debt to foreigners in 1998, the Mexican peso crisis in 1994, and the Asian economic meltdown in 1997. While these risks are usually well known to major banks and multinational companies, and assessment techniques ...