A report from the Financial Times  sparked debate on the applicability of the term “emerging markets”. Some countries possess more advanced characteristics than those actually branded ‘developed’. Take China, who’s export diversification trumps most of, if not all other countries in the world. The key question here: what defines a market as developed?

According to the IMF, there are three main criteria which helps determine the status of an economy as either advanced or emerging.

  • Per Capita Income level
  • Export Diversification
  • Degree of integration into the global financial system.

 

These are the main factors. But it must be noted that other variables are also considered when categorising a market. They comprise of many dimensions, including socioeconomic factors too. Thus, political, economic and legal risk are all notable criteria.

InvestAsian has compiled data on a select few countries to determine the applicability of such terms.

 

Economic Indicators Correlate

Figure 1 below shows the huge gap in GDP per capita Income between the two types of economies. The evidence suggests a higher income is common in a developed economy. This usually means a more stable business environment. The important consideration here, is that the above variable usually correlates with others too, such as unemployment rate.

Another factor is export diversification. The more diverse the export profile a country has, the more developed the economy is. It is clear, again, that developed markets have a more diverse assemblage of exports. This is usually the result of governmental controls of economic legislation. As a result, the diverse export profile is coherent to the per capita income level.  

 

Relativity is Key

However, with respect to the above information, and putting GDP per capita aside, China’s GDP growth far exceeds that of Thailand. This reverberates the classification of an emerging market. Therefore, is China a new strand of ‘emerging’?

“No” is the simple answer. China’s GDP is certainly admirable. Especially when we consider the rate that is has continually grown at over the past few decades. However, the distinction between emerging and developed economies is determined by more than just a few statistics. Compared to Thailand, such economic indicators are fair. Take GDP per capita or export diversification.

For China, and many other emerging economies, legislation and government influence are often their downfall. This hinders them from being classified as developed. Even though China surpasses any other emerging economy by some measures, relativity should always be considered.

 

What Does this Mean for Asian Countries?

Emerging economies usually grow faster, especially when conditions are favourable. Take Cambodia, for example. This means the potential of return on investment is often greater than what it may be in a developed economy. Though the risks associated with this are also far greater. ASEAN member nations have also seen continued growth, especially in recent years. This promotes the idea that emerging economies have the potential to attract greater inward investment.

So, are emerging markets still emerging? Yes, they are. A prescribed level of economic and humanitarian sophistication distinguishes an economy as developed. Until emerging markets reach this level, they will still be considered emerging. One must consider the relativity of markets, as although continued economic growth may be appealing, it does not necessarily make a country developed.

 

Emerging Markets GDP Chart

 

About Henry Skinner

Henry Skinner is an investor based in the United Kingdom. He is currently researching Asian markets and working on several international business developments.

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