Investment risk in emerging markets

Yusaf H. Akbar

Chapter 6 in A Research Agenda for Emerging Markets, 2026, pp 75-86 from Edward Elgar Publishing

Abstract: Investing in developing countries forces investors to confront elevated country risk, caused by the volatility of economic, political, and institutional conditions in developing countries. In contrast with developed economies, developing countries experience greater macroeconomic instability, including higher inflation, fluctuating growth rates, and poor government finances. On a microeconomic level, financial and legal infrastructures may be immature, with regulatory frameworks that change abruptly and enforcement that is sometimes patchy. On a political level, uncertainty is heightened by frequent leadership changes, social unrest, and evolving policy priorities. Key risks in developing countries include sovereign default, sharp currency fluctuations, the imposition of capital controls, and sudden regulatory shifts, all of which lead to greater risk and increased volatility in asset prices. Country risk in developing countries is distinct from operational risk, which stems from firm-level challenges such as unreliable infrastructure, limited oversight, and supply chain vulnerabilities. The prevalence of institutional voids like transparent legal systems, efficient financial markets, and robust regulatory bodies further increases both country and operational risks.

Keywords: Country Risk; Operational Risk; Asset Volatility; Institutional Voids; Macroeconomic Stability; Regulation (search for similar items in EconPapers)
Date: 2026
ISBN: 9781035331574
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