Abstract
This chapter considers why quality enhancement is sometimes, but not always, available for emerging-market financial instruments. It concludes that sometimes, but not always, economies of scope will permit quality enhancement to be provided at a cost lower than the associated benefit. These economies of scope are available when political risk is below a certain level; if political risk is, or is perceived to be, at or above that level, quality enhancement will not be available, except on terms likely not to be worthwhile for an emerging-market firm. More broadly, the increment of quality enhancement that can be exploited is limited. However, financial engineering has shown some promise in increasing the exploitable increment.
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I wish to acknowledge helpful conversations with Jacob Corre and Michael Frankel.
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© 2001 Springer Science+Business Media New York
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Hill, C.A. (2001). The Promise and Limits of Financial Engineering in Emerging Markets. In: Jacque, L.L., Vaaler, P.M. (eds) Financial Innovations and the Welfare of Nations. Springer, Boston, MA. https://doi.org/10.1007/978-1-4615-1623-1_12
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DOI: https://doi.org/10.1007/978-1-4615-1623-1_12
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