What Are Emerging Markets? Key Characteristics & Economies

Emerging markets represent a dynamic category of global economies undergoing significant transformation. These nations are in a transitional phase, moving from a developing status towards becoming more mature and established economies.

Defining Emerging Markets

Emerging markets are characterized by economic, political, and social changes that distinguish them from fully developed nations. Economically, these markets often exhibit rapid gross domestic product (GDP) growth, frequently ranging from 4% to 7% annually, often surpassing developed countries’ growth rates. This growth is fueled by industrialization, as economies shift from reliance on agriculture and raw materials towards manufacturing and service sectors. They are increasingly integrating into the global economy through trade and foreign direct investment, leading to a rising middle class and increased per capita income.

Politically, they are characterized by evolving stability and institutional reforms. Governments implement policies to promote industrialization and economic growth. Socially, they have large, often younger populations, providing a significant labor force and consumer base. Urbanization rates are increasing, with improvements in infrastructure and regulatory environments.

Identifying Emerging Markets

There is no single, universally accepted definition for classifying countries as emerging markets; instead, international organizations and financial institutions use different criteria. Major index providers like Morgan Stanley Capital International (MSCI) and FTSE Russell, along with institutions such as the International Monetary Fund (IMF) and the World Bank, use specific methodologies. MSCI assesses economic development through Gross National Income (GNI) per capita, equity market size and liquidity, and market accessibility for foreign investors, considering factors like foreign ownership limits and capital flow restrictions.

FTSE Russell classifies markets into categories such as Developed, Advanced Emerging, Secondary Emerging, and Frontier, based on market structure, regulatory practices, and liquidity. The IMF categorizes countries as “Advanced Economies” or “Emerging and Developing Economies,” considering factors like per capita income and integration into the global financial system. The World Bank classifies economies based on GNI per capita into income groups, with emerging markets typically falling into the middle-income tiers.

Key Emerging Market Economies

Several countries are widely recognized as prominent emerging markets. China is known for its massive population, rapid economic growth, extensive industrialization, and increasing integration into global trade. India is a significant emerging economy, known for its substantial economic development, competitive labor costs, and skilled workforce.

Brazil, a key South American player and BRICS nation, reflects its substantial economic size and regional influence. Indonesia benefits from a stable political environment, a burgeoning young population, and abundant natural resources. Mexico is a large economy with a strong manufacturing base and trade relationships.

South Africa is a major African emerging market and BRICS member, characterized by its natural resources and developing financial infrastructure. Poland has made considerable strides in economic development and is sometimes considered to be transitioning towards “emerged” status due to its continued growth and market evolution. Turkey is a large economy with a dynamic domestic market and increasing global commerce participation. Vietnam is recognized for its political stability, growing middle class, and regulatory reforms that have made its business environment increasingly favorable for international companies.