A Decade After Cracking the Emerging Markets Enigma:
What I Got Right, What I Missed, and Where We Go From Here
G. Andrew Karolyi, Professor of Finance and Dean, Cornell SC Johnson College of Business
When Cracking the Emerging Markets Enigma was published by Oxford University Press in 2015, my central claim was a simple one, even if the argument behind it was not: emerging markets are not defined by their growth rates, but by their risk profiles. Growth was the seduction; risk was the substance. I proposed that a rigorous definition required disaggregating that risk into distinct dimensions — some readily quantifiable, such as market capacity constraints, illiquidity, and restrictions on foreign ownership, and others far harder to measure, including uneven governance and disclosure standards, weak legal protections for outside investors, and geopolitical instability.
A decade later, invited by the directors of newly-launched BRICS+ Thinking to reflect on that argument, I find its core premise more durable than I could have hoped…and its taxonomy of risk more incomplete than I would like to admit.
The book’s central message has aged reasonably well. Investors who treated “emerging markets” as a single asset class chasing a single growth story were repeatedly punished for ignoring dispersion in institutional quality. The 2013 taper tantrum’s aftershocks, the Turkish lira’s slow-motion crisis, Argentina’s recurring debt dramas, and the uneven paths of Brazil, India, Indonesia, and South Africa through the 2010s all vindicated the idea that risk, less growth, is the organizing variable. Where the qualitative risks I described — governance opacity, legal enforceability, geopolitical fragility — proved decisive, markets with strong headline growth numbers still delivered disappointing, volatile returns. The framework I established held.
What the book missed, I now believe, falls into three categories that a 2015 vantage point simply could not have weighted correctly.
The first is the financialization of geopolitics itself. I treated geopolitical instability as largely exogenous — coups, wars, sanctions imposed on a handful of pariah states. I did not anticipate that great-power competition would turn financial infrastructure into a battlefield: the weaponization of dollar clearing systems, the freezing of central bank reserves, and the accelerating experimentation with alternative payment rails and de-dollarization. Sanctions risk is no longer a tail risk confined to a few isolated regimes; it is a systemic feature that any serious risk taxonomy for emerging markets must now include as its own dimension.
The second missed dimension is economics of pricing and measuring climate, energy transition, and biodiversity-loss risk, which in 2015 I treated, if at all, as an environmental footnote rather than a financial factor. A decade on, it is clear that exposure to climate physical risk, stranded-asset risk in commodity-dependent economies, exposure to nature loss linked to food systems, pharmaceuticals, water quality, soil fertility, coastal protection, and the uneven capacity of governments to finance these challenges are now first-order determinants of sovereign and corporate risk in emerging economies — arguably as consequential as the liquidity and capacity constraints I emphasized in 2015. I am convinced that the mobilization of private capital toward corporate-led mitigation and adaptation to long-run, difficult-to-measure climate and nature loss risks is essential.
The third is digital and data sovereignty risk — a category that essentially did not exist in the framework I built. The rise of cross-border data governance regimes linked to AI, algorithmic capital allocation, and state control over digital infrastructure and payments systems has created a new basis of institutional risk: not whether courts will enforce a contract, but whether a state will nationalize, restrict, or weaponize the digital rails on which capital and commerce now move.
If I were to revisit the book now, I would keep its core structure — the insistence that risk, not growth, defines the category, and that some risks are measurable while others are structurally opaque — but I would add these three dimensions as full members of the taxonomy, not footnotes to it.
I would also be more humble about a fourth, harder truth: the line between “emerging” and “developed” is itself becoming increasingly less stable. Governance quality, legal protections, and even geopolitical alignment are shifting in economies that were once considered safely on the developed side of the ledger.
None of this diminishes the case for careful, sustained, empirically grounded study of these markets — if anything, it strengthens it. That is why I am genuinely heartened to see the launch of BRICS+ Thinking, a new institutional home dedicated to exactly the kind of rigorous, multidimensional inquiry this moment demands. It joins a growing community of serious scholarship in this space, including the continued excellent work of the Canizares Center for Emerging Markets at Cornell’s SC Johnson College of Business, where I serve as dean, and at other centers and initiatives around the world that refuse to treat emerging markets as a monolith or a marketing category.
Ten years ago, I argued that understanding emerging markets required taking their risks as seriously as their promise. Today, with new risks layered atop the old, that argument matters more, not less — and the work of institutions like these is exactly what will keep the field of study honest.
