Emerging Market Economy - Explained
What is an emerging market?
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Table of ContentsWhat is an Emerging Market?What qualifies as an Emerging Market?More General Information on Emerging EconomiesAcademic Research on Emerging Markets
What is an Emerging Market?
Emerging markets or emerging economies are states and nations that have some characteristics of a developed economy but have not fully reached that stage. Emerging markets generally demonstrate a low per-capita income, rapid growth in productivity, a volatile currency, and opportunities for capital investment. Emerging markets have the potential to contribute greatly to the world economy.
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What qualifies as an Emerging Market?
Emerging market economies are generally in a phase between developing and developed. Often-times, the shift from controlled to free-market economies is an evolutionary characteristic linked to emerging markets. Emerging markets generally demonstrate the following characteristics.
- Lower per capita income - The emerging markets have low per capita income than established economies. Developing or emerging countries are those with either low or lower-middle per capita income of less than $4,035 (World Bank).
- Rapid growth - Emerging market economies generally experience rapid growth due to high level of productivity and the low cost of wages. In 2017 USA, Japan, Germany and many other developed countries had economic growth of less than 3 percent. The Emerging market economies of China, India, and Turkey had economic growth of around 7 percent.
- Volatile Currency - Heavy growth in productivity is often paired with rapid inflation. As such, emerging markets are more susceptible to currency swings. These economies generally lack the economic tools to absorb currency shocks.
- Capital investment - Rapid growth in industry sectors requires capital investment. Generally, emerging economies have less-mature capital markets than the developed countries. Their stock markets are risky; but, higher risk often entails higher rewards. Investing in emerging market companies requires research and access the right information. Venture capital and private equity investments in emerging markets is continually on the rise.
There are many countries which can be listed in the group of emerging markets, but the main emerging markets are Brazil, Russian, India, and China, the BRIC countries. Together, these countries possess over 40% of the worlds labor force.
More General Information on Emerging Economies
Emerging markets or economies tend to invest more in productive technologies. They adopt the latest techniques and methods of production to increase productivity. They continuously move away from traditional practices of exporting raw materials or solely relying on agriculture. They want to compete in the economic world and improve the quality and life standard of their people. Today, almost all countries have adopted mixed or free-market economies, although some exception is still. This is due in large part to globalization.