Emerging markets

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Countries which are restructuring their economies to offer a wealth of opportunities in trade, technology transfers, and foreign direct investment are called emerging markets. According to the World Bank, the five biggest emerging markets are China, India, Indonesia, Brazil and Russia. Apart from these there are Mexico, Argentina, South Africa, Poland, Turkey, and South Korea. These countries made a critical transition from a developing country to an emerging market. Each of them is important as an individual market and the combined effect of the group as a whole will change the face of global economics and politics.

Contents

All about emerging markets

Main characteristics

Emerging markets have four major characteristics.

  1. Their large populations, large resource bases, and large markets. Help make them regional powerhouses, whose own economic successes spur development in their neighboring countries. They can also bring their neighbors down in the event of an economic crisis.
  2. They have replaced their traditional state interventionist policies with open door policies as the former had failed to produce sustainable economic growth.
  3. They are the world's fastest growing economies, and it is estimated that by 2020, the five biggest emerging markets' share of world output will double to 16.1 percent from 7.8 percent in 1992. They will also become more significant buyers of goods and services than industrialized countries.
  4. They are critical participants in the world's major political, economic, and social affairs and are seeking a larger voice in international politics and a bigger slice of the global economic pie.

How they emerged

  • The failure of state-led economy and the need for capital investment are the two main causes which brought about the emerging markets. The failure of state-led economic development to produce sustainable growth, and the negative impact it had, pushed those countries to adopt open door policies.
  • The earlier practices of the developing countries borrowing either from commercial banks or from foreign governments and multilateral lenders like the IMF and the Word Bank, often resulted in heavy debt overload and led to a severe economic imbalance. In the light of these results, these countries began to rely on equity investment as a means of financing economic growth. * Equity investments are sought from private investors who become their partners in development. This change in financing source was a major contributor to the growth of the emerging markets.

Emerging markets vs. traditional views

  • In emerging markets, foreign "investment" is replacing foreign "assistance." Investing in the emerging markets is no longer the same as providing development assistance to poorer nations.
  • Trade and capital flows in emerging markets are directed more toward new market opportunities, and less by political consideration.
  • The two-way trade and capital flows between emerging markets and industrialized countries reflect the transition from dependency to global interdependency. The Internet, with accelerated information exchange, is integrating emerging markets into the global market at a faster pace.

The challenges

  • The traditional economic and political systems of the emerging economies, however, continue pose problems, mainly in terms of redefining the role of the government in the development process and to reduce the government's undue intervention.
  • Another serious problem is that of controlling corruption, which distorts the business environment and impedes the development process.
  • Taking up structural reforms with their financial system, legal system, and political system for ensuring a disciplined and stable economy is an even bigger challenge for these economies.

Prospects

Emerging markets are the key to the future growth of world trade and global financial stability, and they will become critical players in global politics.

CopperBytes

  • Emerging markets constitute approximately 80% of the global population, representing about 20% of the world's economies
  • Emerging markets are considered the fastest growing economies

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What are emerging markets?