Emerging Market Economy

October 13, 2010Economic Systemsby EconomyWatch

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Emerging Market Economies (EME’s) like China, India and the erstwhile Soviet Bloc countries are coming of age with increasing levels of its Gross Domestic Product (GDP) over the last decade. This has happened mainly due to more investments made by foreign companies in these countries.

The term emerging market economy was coined in 1981 by Antoine.W.van.Agtmael of the International Finance Corporation under the aegis of the World Bank. The term actually refers to developing market economies which have embarked on a slew of developmental measures until recently and are emerging in the “global economy scene.”An emerging market economy is said to have per capita incomes in the lower-middle range if calculated by world incomes at the per capita level.

Emerging economies constitute about 80% of the world’s population and more than 20% of the global economy. Emerging markets have the essential characteristic of trade liberalization and opening up their economies at the global stage. This leads to many foreign goods flowing into the domestic market which now competes with locally produced articles. This increases the standard of domestically manufactured goods and services and raises their productivity and also helps to produce export quality articles.

One of the best examples of emerging economies is Vietnam where exports are ever increasing. This is true of most emerging markets where we see a rise in the country’s export earnings coupled with increased foreign exchange reserves, a steady inflation rate and the equity market showing sufficient stability. The exchange rates of the emerging market economies are also shown to be remarkably stable and doing well against the standard international currencies like the Dollar and the Euro.

Most of the emerging markets also experience an increase in value or appreciation of the domestic currency against the US Dollar which indicates the improved performance of the economy. This is no way will cause any hindrance to the international community investing in the country dependent mainly on the economic stability, the political stability and transparency in the economy. Investor confidence is seen to rise in the countries such as China, India, Brazil and Pakistan with foreign investments in infrastructural facilities seen to increase. With international investors engaging in extensive Foreign Indirect Investment (FII) in emerging market economies and putting more and more money on government bonds, the demand for those bonds are also seen to rise with the yield rates on bonds.

The emerging market economies such as India, Pakistan, China and Vietnam are the major success stories of the world. The increased investment on infrastructure by the foreign investors in these emerging economies has seen improved facilities and conditions here for other investors to invest in future. This had helped bring these nations on the growth path to development through more industrialization, more and more job creation for the large number of unemployed in the country and fine tune the managerial and professional skills. It has brought about a huge change in the GDP level of the country with improved standards of living.

EME’s such as in the Indian subcontinent and countries like China, South East Asia and a few Latin American and the erstwhile Soviet bloc have especially benefited from increased interest in these countries by foreign investors. However, to be on the growth track, they need to maintain stability in their system and also transparency to keep the investor confidence high.

Lastly, with high growth rates for these emerging economies in a state of transition, it will only be truly beneficial if these improved standards of living percolate right down to the poorest of poor. We cannot afford to have too many poor and too few millionaires.

Mixed Economy |  Socialist Economy |  Capitalist Economy

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