The term “emerging economies” has become widely used to describe countries exhibiting signs of rapid economic growth, globalisation, and opening markets to global capital, technology, and talent. The World Bank, the International Monetary Fund, and the United Nations use income classification to rank economies and illustrate this trend. However, categorizing economies as “emerging” based solely on their income level or growth rate is problematic, as it overlooks the historical, political, economic, legal, and cultural factors that influence their market structures.
Economist Antoine Van Agtmael coined the term as a marketing strategy to attract investment into countries with excellent growth potential. It replaced negative and outdated terms such as “third world” and “underdeveloped” with more aspirational term that suggests progress and dynamism. However, over time, the term has become problematic for several reasons.
Firstly, organisations such as the IMF, the UN, and financial index providers like Morgan Stanley Capital International use different criteria to categorise emerging markets, leading to confusion and misleading perceptions that ultimately affect the efficiency of global governance. For instance, MSCI identifies 24 emerging markets, while the IMF recognizes 152 emerging and developing economies.
Secondly, the term misdirects investors by failing to address the distinction between developed and emerging markets. Chile, for example, has a larger economy, larger population, less debt, and less unemployment than Portugal. Yet, it is classified as an emerging economy, while Portugal is considered a developed economy.
Thirdly, the optimistic use of the term has led to rushed forecasts and assumptions that the emerging trend will continue. Economic blocs such as the CIVETS were created based on a rise in the average growth rate of emerging economies. However, the case of BRICS demonstrates that it is difficult to form a solid economic bloc without regard for the individual stories of each economy and the factors that influence their market structures.
Emerging markets are complex and diverse, and understanding their individual stories is crucial. Categorizing them collectively as “emerging economies” oversimplifies the complexities and nuances of each economy’s market structure. It is particularly relevant for countries that are embarking on economic reform efforts to promote efficient markets, transparent processes, and a stable local currency that will attract investors.
The term “emerging economies” suggests that these economies are on the path to development. Still, in reality, it is only through the implementation of sound policies that they can emerge. For example, the Philippines experienced promising growth but stalled due to bad policies implemented during Ferdinand Marcos’s mandate. Political cycles are as crucial to a nation’s potential as economic ones.
In conclusion, while the term “emerging economies” has been helpful in replacing negative terminology and contributing to the development of markets, it must be used responsibly. The complexities of categorising economies cannot be overlooked, and context must be prioritized over universality. It is crucial to understand market conditions individually and avoid extrapolation. Ultimately, the term “emerging economies” should be seen as a process of societal transformation and the implementation of sound policies that enable actual emergence rather than just an aspirational descriptor.
This piece was originally written for and published on The London International Development Centre.