Tutorial

International Finance

Name: Dibya Saha

ID: 1100601596
Why some countries remain emerging economies for decades? Use emerging countries as a
case study. 

An emerging market economy is a developing country's economy that is becoming more

involved in global markets as it grows. Emerging market economies are those that have
some but not all of the characteristics of developed markets.
Strong economic growth, high per capita income, liquid equity and debt markets,
accessibility to foreign investors, and a dependable regulatory system are all
characteristics of developed markets. As an emerging market economy grows, it
typically integrates more fully into the global economy. That means increased liquidity in
domestic debt and equity markets, increased trade volume, and increased foreign direct
investment. It has the potential to create modern financial and regulatory institutions.
India, Mexico, Russia, Pakistan, Saudi Arabia, China, and Brazil are currently notable
emerging market economies.

A critical transition for an emerging market economy is from a low-income, less

developed, often pre-industrial economy to a modern, industrial economy with a higher
standard of living.
Investors seek out emerging markets for the possibility of high returns because these
markets frequently experience faster economic growth as measured by GDP (GDP).
However, higher returns are usually accompanied by much higher risk.
Emerging Markets Features
The following are some common characteristics of emerging markets:
1. Market turbulence- Political instability, external price movements, and/or supply-
demand shocks caused by natural disasters all contribute to market volatility. It
exposes investors to the risk of currency fluctuations as well as market
performance.
2. Potential for growth and investment
Because of the high return on investment that emerging markets can provide, they
are frequently appealing to foreign investors. Countries that are transitioning from an
agriculture-based economy to a developed economy frequently require a large influx
of capital from foreign sources due to a lack of domestic capital. Using their
competitive advantage, such countries concentrate on exporting low-cost goods to
richer countries, boosting GDP growth, stock prices, and investor returns.
3. Rapid economic growth rates
Emerging market governments typically pursue policies that promote
industrialization and rapid economic growth. These policies result in lower
unemployment, higher disposable income per capita, increased investment, and
improved infrastructure. In contrast, developed countries such as the United States,
Germany, and Japan have low rates of economic growth due to early
industrialization.
4. Per capita income
Because of their reliance on agricultural activities, emerging markets typically have
low-middle income per capita in comparison to other countries. Income per capita
rises in tandem with GDP as the economy pursues industrialization and
manufacturing activities. Lower average incomes also act as inducements for
greater economic growth.
The Top Five Emerging Markets
Brazil, Russia, India, China, and South Africa are the world's largest emerging
markets. The leaders of Brazil, Russia, India, and China met in 2009 to form "BRIC,"
an association formed to improve political relationships and trade between the
world's largest emerging markets. South Africa became a member of the "BRIC"
group in 2010, which was later renamed "BRICS."
1. Brazilian
Brazil's economy grew rapidly relative to the rest of the world in the early 2010s, at a
rate of 7.5%. However, due to political unrest and trade sanctions, growth slowed
and turned negative in 2016 (-3.5%). Brazil also saw significant improvements in
income levels and poverty reduction from 2003 to 2014, but progress has slowed
since 2015 due to lower economic activity.Political uncertainty and reduced
government spending have had a significant impact on the Brazilian economy.
However, the country's future appears to be bright. The domestic economy
expanded by 0.6% in 2019 and is expected to maintain growth through infrastructure
improvements and foreign investments, as well as its reliance on agricultural
commodities such as soybeans and coffee.
2. Russian Federation
Russia's GDP increased exponentially between 1999 and 2008, owing primarily to
increased oil exports and rising oil prices (before the Global Financial Crisis). The
country's economic growth has been boosted by economic reforms and an export-
oriented trade policy since the country's transition from communism to capitalism
began in 1991.However, since 2014, Russia's economy has been harmed by
political conflicts and trade sanctions imposed by the United States, Canada, Japan,
and the European Union, as well as fluctuations in the price of oil, which accounts
for nearly 52% of Russian exports.
3. India
Following trade liberalization and other major economic reforms in 1991, India
established itself as an emerging market. The Indian economy has been expanding
at a relatively rapid pace. Over the last decade, it has averaged 7.1%, with some
fluctuations due to political instability and economic reforms.Essentially, long-term
economic growth in India can be attributed to the expansion of the manufacturing
and service sectors, which is fueled by exports and foreign investment. India is also
seeing increases in capital and labour productivity as a result of technological
advancements and educational reforms. India, along with China, is currently one of
the largest emerging markets.
4. China
Since the implementation of trade liberalization and economic reforms in 1978, the
Chinese economy has grown at an annual rate of 10%. China's economy has grown
as a result of government spending, the expansion of its manufacturing sector, and
exports (specifically electronic equipment). However, the country's per capita income
remains low. Although only 3.3% of the Chinese population is poor, 30% of the
population lives on less than US$5.50 per day. Nonetheless, as the Chinese
government focuses on increasing GDP through consumption, disposable incomes
are expected to rise, resulting in long-term economic growth.
5.South Africa is number five.
South Africa joined the BRICS association in 2010, after experiencing negative GDP
growth (-3%) in 2009 as a result of the 2008 Global Financial Crisis. Following the
financial crisis, the South African government implemented a number of policies
aimed at increasing GDP through increased government spending and consumption.
Economic growth increased in 2010-12, then slowed in 2012-16 before picking up
again in 2017.South African exports are primarily made up of mining commodities.
As a result, export volumes are determined by commodity prices, which are highly
volatile. Export volume fluctuations explain a portion of the variation in GDP growth
over the last few years. Although South Africa's GDP per capita has risen over time,
so has the country's unemployment rate (29% as of 2019). High unemployment and
crime rates have hampered the economy's growth and investment potential, and
these issues must be addressed through policy changes.

1. References: Nasdaq.
"What is the difference between a developed,
emerging, and frontier market?"

2. Statista. "Gross domestic product (GDP) of the BRICS countries from

2000 to 2026