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Before I get on with the definition of Emerging Economy, I would like to describe Developing Countries: “Countries or nations with an average income that is relatively lower than in highly industrialized countries, and are in the process of change toward economic growth. They are comparatively lower than the developed countries in terms of health care, literacy, and per capita income.”
Developing countries is the term which usually describes a nation with low resources but have a potential to emerge as a developed country with the help of its man power and political situation.
Now I will come to define what Emerging Economy is:
“Country experiencing development and economic growth a country that is becoming industrialized and undergoing economic growth”. (www.q.c)
What are they?
Emerging markets are countries that are restructuring their economies along market-oriented lines and offer a wealth of opportunities in trade, technology transfers, and foreign direct investment. According to the World Bank, the five biggest emerging markets are China, India, Indonesia, Brazil and Russia. Other countries that are also considered as emerging markets include 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.
What makes them different?
Emerging markets stand out due to four major characteristics. First, they are regional economic powerhouses with large populations, large resource bases, and large markets. Their economic success will spur development in the countries around them; but if they experience an economic crisis, they can bring their neighbors down with them. Second, they are transitional societies that are undertaking domestic economic and political reforms. They adopt open door policies to replace their traditional state interventionist policies that failed to produce sustainable economic growth. Third, they are the world’s fastest growing economies, contributing to a great deal of the world’s explosive growth of trade. 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. Fourth, they are critical participants in the world’s major political, economic, and social affairs. They are seeking a larger voice in international politics and a bigger slice of the global economic pie.
What brings them into being?
There are two potential causes for the creation of emerging markets: the failure of state-led economic development and the need for capital investment. First, state-led economic development failed to produce sustainable growth in the traditional developing countries. This failure and its tremendous negative impact pushed those countries to adopt open door policies, and to change from the state’s being in charge of the economy to facilitating economic growth along market-oriented lines. Second, the developing counties desperately needed capital to finance their development, but the traditional government borrowing failed to fuel the development process. In the past, the governments of the developing countries borrowed either from commercial banks or from foreign governments and multilateral lenders like the IMF and the Word Bank. This often resulted in heavy debt overload and led to a severe economic imbalance. The past track record of many developing countries also demonstrates their inability to well manage and efficiently operate the borrowed funds to support economic growth. In light of the unsatisfactory results of government borrowing, developing countries began to rely on equity investment as a means of financing economic growth. They seek to attract equity investment from private investors who will become their partners in development. To attract equity financing, a developing country has to establish the preconditions of a market economy and create a business climate that meets the expectations of foreign investors. This change in financing sources thus became another factor leading to the rise of emerging markets.
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How do they change the traditional view of development?
The rise of emerging markets is changing the traditional view of development as follows. First, foreign “investment” is replacing foreign “assistance.” Investing in the emerging markets is no longer associated with the traditional notion of providing development assistance to poorer nations. Second, emerging markets are rationalizing their trade relations and capital investment with industrialized countries. Trade and capital flows are directed more toward new market opportunities, and less by political consideration. Third, the increasing two-way trade and capital flows between emerging markets and industrialized countries reflect the transition from dependency to global interdependency. The accelerated information exchange, especially with the aid of the Internet, is integrating emerging markets into the global market at a faster pace.
What challenges do they face?
In their effort to create a market economy and to ensure sustainable development, emerging markets still face big challenges that come from fundamental problems associated with their traditional economic and political systems. A market economy requires those countries to redefine the role of the government in the development process and to reduce the government’s undue intervention. Another serious problem that those countries have to confront is controlling corruption, which distorts the business environment and impedes the development process. An even more challenging task for those countries is to undertake structural reforms with their financial system, legal system, and political system, so as to guarantee a disciplined and stable economy that is relatively free of political disturbances and interference.
What are their prospects?
Emerging markets are the “key swing factor” in the future growth of world trade and global financial stability, and they will become critical players in global politics. They have a huge untapped potential and they are determined to undertake domestic reforms to support sustainable economic growth. If they can maintain political stability and succeed with their structural reforms, their future is promising. (www.u.e.shtml)
Basically this term is related to business and market activity in industrializing. These countries are considered to be in a transitional phase between developing and developed status e.g BRIC (Brazil, Russia, India and China) these countries are continually increasing role in the world economy and on political platforms.
There are few factors/Condition which make any developing country to become an emerging economy which is given below:
Infrastructure means the basic physical and organizational structures and facilities like transport system like roads, airport, railway and sea port.
Geo political situation:
Geo means environment, soil condition, weather condition, industrial environment, stability of neighborhood countries
Rather you soil is fertilizer or not, rather proper weather is available for your soil to get a better crops from it, rather your former are well inform about the per accord output you getting from your soil. So in this regard we have to develop a well established soil science in country.
There must be a suitable weather which suits your industries and growth of agriculture.
Political environment is must be stable through out of its independence.
Some economists believe that for economic growth industrial stability is very important and it can play a major role in growth.
If your neighborhood countries situation is stable then you can go for the trade between those countries.
The term of foreign policy is very broad, it is useful to develop better relations with the other countries for your own in trust with Mutual Corporation.
In recent years of Globalization there are few developing countries which are termed as Emerging Economies: BRIC (Brazil, Russia, India and china)
Brazil is very rich in sugar industry have good conditions and having the water resources like biggest river’s, more than 30% of the country occupied by the forest like amazon forests and have a huge man power to utilized and organized all these resources make it to become an emerging economy
Land wise Russia is one of the biggest country and suitable for steel industry and agriculture having all suitable conditions like weather and geo political situation along with infrastructure along with the help of their brains to put its direction on the verge of rise and achieve a peaks on economy graph
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Population wise India is the 2nd biggest country of the word , environment is suitable for cotton, steal, sugar and agriculture industry with suitable weather and having a so called stable political situation make it emerging economy
Population wise China is the biggest country of the word, this country is rich with the resources like Fair political situation, very nice weather and rich man power. China have one of the biggest micro industry of the word and the GBP ratio is more as compare the other countries of the BRIC, but the main thing behind the success of china is devotion, hardworking, dedication and most important that people are loyal to their country. They use their whole potential with the use of all these suitable environment which is mentioned above become the most emerging nation of the word
3. Foreign polices
How are the Global Financial Crisis Affecting Emerging Economies?
Emerging economies, following decades of homegrown economic crises, were thought to have “decoupled” their economic growth and stability from the trajectory of developed economies. However, the current global financial crisis has revealed that emerging economies, no matter how apparently sound, are still highly vulnerable to financial crises and downturns in investor confidence originating in developed economies.
The global financial crisis has dramatically affected emerging economies in 2008 and 2009. The local origins of the crisis subprime mortgages and credit crises in the U.S. and Western Europe have radiated to the rest of the world, affecting international financial flows to emerging economies and revealing those economies’ dependence on foreign capital. Below are the crisis’ primary effects on emerging economies:
Capital and investment outflows from emerging economies, endangering those with budget deficits and high sovereign debt Credit crunches and bank hesitance to resume lending Currency depreciations and the corresponding depletion of foreign exchange reserves Stock market crashes Decreasing demand for exports as well as commodities price decreases.
A renewed role (need) for the IMF as a lender of last resort an increasing prominence and importance in the global economy for emerging economies (e.g. the G20)
G20 and Beyond
Emerging economies are expected to play a large role in the global recovery from the financial crisis.
In 2009, emerging economies are expected to constitute the vast majority of global economic growth due to negative growth in many developed countries.
The G20 (which includes both traditional economic powers and emerging economies) meeting in November 2008 signified that emerging economies are recognized as essential to a new global financial infrastructure.
The G20 meeting affirmed the importance of emerging economies and their voices in a globally coordinated response to the crisis.
The Declaration from the G20 summit called for greater emerging economy representation in international financial bodies.
Recovery of the emerging economies will be essential to global growth, as China, Russia, India, Brazil, and other large emerging economies now make up 30% of global GDP, and as China have recently passed Germany to become the third-largest economy in the world. (www.u.e.pdf)
So in my opinion Strategic analysis of emerging economy including quantitative and demographic change and their relationship to neighboring countries and their region, made a critical transition from a developing country to an emerging market. A new and comprehensive framework for recognizing, modeling, and predicting business trends for the world’s Emerging Economies, encompassing income distribution, GDP growth, sectors of the economy, informal enterprises, energy efficiency and informationalization along with its better policy, making good use of its resources, free trade policy, proper use of man power, better infrastructure; help these countries to fight with global economical crisis which other are facing, sustained its position as emerging economy .Other countries that are also considered as emerging markets include Mexico, Argentina, South Africa, Poland, Turkey, and South Korea as following above measures .
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