Emerging Market Economy – Definition

Cite this article as:"Emerging Market Economy – Definition," in The Business Professor, updated November 17, 2018, last accessed October 29, 2020, https://thebusinessprofessor.com/lesson/emerging-market-economy/.


Emerging Market Definition

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.

A Little More on What is 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. ‚ÄúDeveloping or emerging countries are those with either low or lower-middle per capita income of less than $4,035‚ÄĚ (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 ‚ÄúBRIC‚ÄĚ 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.

References for Emerging Markets


Academic Research on Emerging Market

International expansion of emerging market¬†enterprises: A springboard perspective, Luo, Y., & Tung, R. L. (2007). This article presents a springboard perspective to describe the internationalization of emerging market multinational corporations (EM MNEs). The authors wishes to discuss unique traits that characterize the international expansion of EM MNEs, and the unique motivations that steer them toward internationalization. They also go on to explain the risks and remedies associated with this international ‘springboarding’ strategy and highlight major issues meriting further investigation.

Stock market liberalization, economic reform, and emerging market equity prices, Henry, P. B. (2000). The Journal of Finance, 55(2), 529-564. This research examines the tendency of countries to pursue stock market liberalization. The research finds that libreralizing a countries stock market generally reduces the country’s cost of equity capital This is a result of sharing risk between the domestic and foreign agents.

Emerging market business cycles: The cycle is the trend, Aguiar, M., & Gopinath, G. (2007). Journal of political Economy, 115(1), 69-102. This paper analyses the differences between the behaviour of Emerging Market’s business cycles and developed small open economies.This article aims to show a standard model which characterizes these two types of market. It also goes on to examine and provide results on the primary causes of fluctuation in emerging markets.

Inflation targeting in emergingmarket countries, Mishkin, F. S. (2000). American Economic Review, 90(2), 105-109. This paper outlines what inflation targeting involves for emerging market/transition countries and discusses the advantages and disadvantages of this monetary policy strategy. The discussion suggests that although inflation targeting is not a panacea and may not be appropriate for many emerging market countries, it can be a highly useful monetary policy strategy in a number of them.

What explains changing spreads on emergingmarket debt: fundamentals or market sentiment?, Eichengreen, B., & Mody, A. (1998).  (No. w6408). National Bureau of Economic Research. This paper examines data provided on nearly 1000 developing-country bonds issued in the year 1991-1996, the period of heavy reliance on country bonds. It also goes on to investigate the issue decision of debtors, and the pricing decision of investors in relations to each other. The main objective of this paper is to show the factors which led to the changing spread on emerging markets’ debt.

Liquidity‚Äźprofitability tradeoff: An empirical investigation in an¬†emerging market, Eljelly, A. M. (2004). International journal of commerce and management,¬†14(2), 48-61. This study empirically examines the relation between profitability and liquidity, as measured by current ratio and cash gap (cash conversion cycle) on a sample of joint stock companies in Saudi Arabia using correlation and regression analysis.

How emerging market governments promote outward FDI: Experience from China, Luo, Y., Xue, Q., & Han, B. (2010). Journal of world business, 45(1), 68-79. This paper analyses the impact of emerging markets government interference on Large Scale outward foreign direct investment (OFDI). Using the Chinese market as a case study, this paper presents the various government institutions that impact Chinese OFDI, discuss changes made on their OFDI policies, and define the current policies and measures that stimulate Chinese companies to expand into the global market.

What is really different about emerging market multinationals?, Ramamurti, R. (2012). Global Strategy Journal, 2(1), 41-47. This article focuses on the analysis of how and why emerging market MNEs (EMNEs) internationalize. The author wishes to show if the existing theories developed from the study of DMNEs are adequate to explain the behaviour of EMNEs.

The mirage of exchange rate regimes for emerging market countries, Calvo, G. A., & Mishkin, F. S. (2003). Journal of Economic Perspectives, 17(4), 99-118. This paper shows that much of the arguments on choosing an exchange rate regime is off point. This paper follows a particular methodology to prove this point. First, it starts by exploring the theory of choice between exchange rates regime, then examines the weakness of this theory in relations emerging marketing market economies. It then goes on to discuss the institutional traits and the importance of exchange rate regimes on emerging market countries.

Tracing the impact of bank liquidity shocks: Evidence from an emerging market, Khwaja, A. I., & Mian, A. (2008). American Economic Review, 98(4), 1413-42. This paper examines the impact of liquidity shocks by exploring cross-bank liquidity variation induced by unanticipated nuclear tests in Pakistan. This paper further analyses the impact of borrowing from such banks on large (with strong political ties) and small firms.

Distributional characteristics of emerging market returns and asset allocation, Bekaert, G., Erb, C. B., Harvey, C. R., & Viskanta, T. E. (1998). Journal of Portfolio Management, 24(2), 102-+. In this paper, we estimate two stochastic volatility models applied to international equity markets. We analyse the Japanese, Canadian and German markets as case studies.

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