Strategic Hedging and Sustainable Business Growth in Emerging Economies: A Comparative Analysis of Pakistan and Azerbaijan

Under what institutional conditions does strategic hedging—deliberate non-alignment amid great-power competition—promote rather than hinder sustainable business growth in emerging economies? This paper attempts to tackle the question from an open economy politics and neoclassical realism perspective by a structured, focused comparison of the two between 2010 and 2025 by Pakistan and Azerbaijan. The research method used consists of a process tracing and a congruence analysis with triangulated data of energy investment portfolios, documents on infrastructure projects (China–Pakistan Economic Corridor and Southern Gas Corridor documents) and indicators from institutions (World Bank and IMF). It brings sustainable hedging into focus: a strategy that connects multiple external partnerships to regulatory boundaries and environmental boundaries by means of binding frameworks. The gold-mining of hydrocarbons in Azerbaijan allowed for the creation of a sustainable coherent hedge comprising engagement with the EU, China and Russia, plus a 'green energy corridor' with measurable reductions in emissions. The chronic balance of payments difficulties in Pakistan, however, created a confusing mix of 'hedges' in financing coal (from China) and renewable energy (from the West) emission reductions, and multiple carbon emission standards that hampered its green energy transition. The key intermediary lies in the institutional capacity (especially in terms of transparency of procurement, autonomy of the authority and credibility of the policy). Clearly, the analysis reveals continuing structural compromises such as energy security in the short term and sustainability in the long term; diversification versus consistent regulatory structures; and dependence on a limited few market forces versus policy autonomy. The paper concludes that strategic hedging is a way to sustain business growth, provided it is within good institutional internal processes in the country which can mediate these conflicting positions and ensure a coherent way of dealing with the conflictual external parties.