How do investors react when emerging markets sign onto groups with good members? And is it possible to be reasonably sure that it is indeed the members themselves, and not other aspects of the group, that are driving the changes in investor perception? This chapter focuses on the bright side of the central theory – those occasions when the company a country keeps instills confidence in investors. The tests here reestablish, and subsequently unpack, evidence in favor of the central hypothesis: that economic association with good-quality members makes emerging markets look less risky.

The EU makes for a good test case because it has, throughout its history, varied on both of the dimensions described in the central hypothesis. First, it has seen different strengths of the “good company” it has offered in terms of the asymmetry of those members joining – think of the accession of Portugal, Spain, and Greece to a politically stable EU in the 1980s, versus the possible membership of Turkey or Macedonia today to a twenty-seven-member EU with much greater diversity in terms of members' political quality. Second, the intensity of those associations have also varied, from full-on integration into the EU, to weaker association agreements through the European Neighborhood Policy, to proposed free-trade areas (the Economic Partnership Arrangements). Examining the impacts on investor risk of these naturally occurring variations will afford a better understanding of the dynamics of the company a country keeps.