What Are the Main Characteristics of ‘Emerging Markets’?

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What are the main characteristics of ‘emerging markets’?

During the changing of world economy, it is increasingly common to hear the term ‘emerging markets’ and from news and report. In the mid-1980s, the term ‘emerging markets’ was created by the World Bank, and has significant influence on the global business world nowadays (Gwynne, Klak and Shaw 2003). To raise investor’s attention to those developing countries, there are numerous characteristics springing up which are given by researches and economists. However, some of those characteristics are contradictory and it is difficult to give a real definition. This essay discusses the main characteristics of ‘emerging markets’ as defined by the World Bank and economists. Further, another key characteristic needs to be taken into consider when defining ‘emerging markets’.

The definition by the World Bank
The term ‘emerging markets’ is an extension of the terms ‘Second World’ and ‘Third World’ and was coined by the World Bank economist Antoine van Agtmael in the mid-1980s (Gwynne, Klak and Shaw 2003, The Economist 2011). The term was based on two concepts and had replaced ‘the Third World’ and ‘developing countries’ (Gwynne, Klak and Shaw 2003). ‘First, it coined the term to refer to those countries outside the core that are most attractive to international investors. Second, the World Bank initiated a new real material opportunity for foreign investors to profit from investment in these countries’ (Gwynne, Klak and Shaw 2003: 23). Basically the World Bank classifies those economies based on their gross national income (GNI) per capita and those data computed using the Atlas method. Only the classifications and data of low-income and middle-income economies are reported and do not necessarily reflect development status, even though the economies with low or middle income are sometimes referred to as developing economies (the World Bank, no date).

The Characteristics of Emerging Markets Is ‘In Progress’ Furthermore, there is another important characteristic of ’Emerging markets’ given, which means they are undergoing a process. Kvint (2008) indicates that some statistics of reports on emerging market are contradictory, and this inconsistent situation even can be seen from IMF’s reports. For instance, some emerging countries like China and India are classified as emerging markets and are included in the category of developing countries. On the other hand, many of the sub-Saharan countries as emerging markets are definitely still undeveloped. Kvint (2008) suggests that the main and most important characteristic of all emerging market countries is that they are at some stage during the processes of economic maturation and development of free markets. An attractive environment for foreign investors and global trading has been created based on this characteristic. He suggests the main characteristics in his study: an emerging market country can be defined as a society transitioning from a dictatorship to a free market-oriented economy, with increasing economic freedom, gradual integration within the global marketplace, an expanding middle class, improving standards of living and social stability and tolerance, as well as an increase in cooperation with multilateral institutions (Kvint 2008, online). Results of his study revealed that 81 countries were selected from the 192 country-members of the U.N. and categorized as emerging markets. Those emerging countries ‘account for nearly half of the gross world product, and attracted about $600 billion of foreign direct investment’ (Kvint 2008, online).

The Challenges and Opportunities Emerging Markets Create
However, Mahajan and Banga suggest that the characteristics of each emerging market present challenges but also opportunities, and they are listed below:

1. Markets and culture are demanding;
2. There are high rates of emigration to the developed world; 3. Markets are fragmented;...
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