Emerging markets

What Are Emerging Markets?
By Chuan Li
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 alsoconsidered 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 standout 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 andpolitical 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 in1992. 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 emergingmarkets: 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 economicgrowth 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 oftenresulted 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.
How dothey 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...