© 2004 International Monetary Fund
IMF Working Paper
What Is an Emerging Market?
Prepared by Ashoka Mody
This Working Paper should not be reported as representing the views of the IMF.
The views expressed in this Working Paper are those of the author(s) and do not necessarily represent
those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are
published to elicit comments and to further debate.
As developing economies become richer, they seek to contract with the global economy in
increasingly complex ways. Dealing with that complexity often implies the need to
renegotiate contracts. However, such recontracting is viewed with concern, particularly by
market participants. At the same time, iron-clad commitments to abstain from recontracting
are untenable. Sovereign debt experts have long dealt with this dilemma. This paper argues
that the acute trade-off between commitment and flexibility is not unique to sovereign debt.
Instead, it is the defining characteristic of an emerging market. Examples of World Bank
guarantees on behalf of sovereign governments to private lenders, exchange rate regimes, and
international bond contracts, highlight the evolution from commitment to flexibility. Early
interaction with international markets typically benefits from strong transaction-specific
commitment. However, the goal is to grow out of transactional commitments to achieve
commitment through credible institutions. Institutional commitment allows the benefits of
flexibility, with the country’s “word” acting as the necessary assurance to behave
JEL Classification Numbers:
Emerging Markets, Commitment-Discretion Trade-Off
Author(s) E-Mail Address:
For many helpful comments, I am grateful to Charles Blitzer, Michael Bordo, Thomas Duvall,
Barry Eichengreen, Jeffry Frieden, Mitu Gulati, Sean Hagan, Harold James, Martin Schindler,
Daniel Tarullo, and Michael Tomz. Adrian de la Garza provided his usual expert assistance.
This paper was prepared for the Georgetown Journal of International Law.