Emerging market economy

Emerging market economy refers to a nation's economy that is progressing toward becoming more advanced, typically through rapid growth and industrialization. The term was coined by Antoine van Agtmael of the International Finance Corporation in 1981. These economies possess some characteristics of developed markets but do not yet fully meet developed economy standards.

Historical background

Before the 1980s, economists commonly used the term "less developed countries" (LDCs) to describe nations outside the industrialized West and Japan. Van Agtmael proposed "emerging markets" as a more optimistic term that would attract investment interest. The concept gained traction during the 1990s when financial liberalization swept through Latin America, Asia, and Eastern Europe.

Foreign capital flows to emerging markets remained restricted for most of the post-World War II period. The Latin American debt crisis of the 1980s triggered reforms that opened these economies to international capital. By the 2000s, emerging markets had become central to global economic growth strategies.

Characteristics

Emerging market economies share several defining features^[1]:

Rapid GDP growth - Growth rates typically exceed those of developed nations by 2-4 percentage points annually
Market reforms - Governments implement policies to reduce corruption, increase transparency, and facilitate business operations
Industrialization - A shift from agricultural to manufacturing and service sectors occurs
Infrastructure development - Significant investment flows into roads, telecommunications, and energy systems
Rising middle class - Consumer demand expands as incomes grow

According to economist Julien Vercueil, emerging economies display intermediate income levels (between 10% and 75% of average EU per capita income), catching-up growth patterns, and institutional transformations that integrate them into the world economy.

Major emerging markets

The BRICS nations (Brazil, Russia, India, China, and South Africa) represent the most prominent emerging market economies. These five countries contain 40% of the world's population and generate over 25% of global GDP.

As of 2024, the ten largest emerging economies by nominal GDP include:

China
India
Brazil
Russia
Mexico
South Korea
Indonesia
Turkey
Saudi Arabia
Poland

Chile, Malaysia, and the United Arab Emirates serve as examples of smaller but rapidly advancing economies.

Economic significance

Emerging market economies now account for approximately 80% of the world's population. Their share of global PPP-adjusted GDP rose from 27% in 1960 to roughly 53% by 2013. Current projections suggest that by 2050, China and India will rank among the world's three largest economies alongside the United States.

These markets generate more than half of global economic growth. The transformation has reshaped international trade patterns and investment flows over the past three decades.

Risks and vulnerabilities

Emerging markets face particular challenges that developed economies have largely overcome. Currency volatility presents ongoing risks. Interest rate fluctuations in major economies like the United States can trigger capital outflows. Commodity price swings affect nations dependent on natural resource exports.

Political instability remains a concern in many emerging markets. Institutional weaknesses can undermine investor confidence. The 1997 Asian financial crisis and 2008 global recession demonstrated how quickly capital can flee these markets during periods of uncertainty.

References

van Agtmael, A. (1981). Emerging Securities Markets. Euromoney Publications.
Vercueil, J. (2012). Les pays emergents: Bresil, Russie, Inde, Chine... Mutations economiques et nouveaux defis. Breal.
International Monetary Fund (2024). World Economic Outlook Database.

Footnotes

[1] Characteristics synthesized from World Bank and IMF classification criteria for emerging market economies.

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