Emerging Markets

The phrase "emerging markets" has two distinct connotations. First, it means new and emerging foreign export markets for U.S. companies. The U.S. Commerce Department's International Trade Administration (ITA) uses the phrase in this sense—pointing at markets where U.S. companies might find additional sales. Second, the phrase acts as an abbreviation in investment circles and refers to groups of nations, regions of the world, and investment strategies which specialize in buying and selling the stock or debt instruments of "emerging markets." The same countries are often referred to in either context, although U.S. trade promoters sometimes include countries that would not meet the definition of an emerging market as used by Wall Street investors.

Depending on the particular viewpoint of the individual or institution providing the definition, emerging markets are just a few leading countries or include more than 40 countries on all continents. Frequently mentioned emerging markets are China and India in Asia; Argentina, Brazil, and Chile in the Americas; the former Communist European countries and Russia in Europe; Turkey in the Middle East; and Egypt in Africa. An important leading subgroup with the catchy acronym of "the BRICs" includes Brazil, Russia, India, and China—thus the largest of the emerging markets. By common consensus, the emerging market in the mid-2000s was China—as in the 1970s it had been Japan.

The defining features of emerging markets include at least the following factors. The markets are actively growing under governmental policies that favor a capitalist-style economy. Governments are predictably stable but not necessarily democratic. Substantial future growth is guaranteed because their internal resources and infrastructure still remain unexploited and undeveloped. They have a large, growing, and prosperous middle class; in China, for instance, the size of this class is equivalent to the total population of the U.S.; in India this class is only slightly smaller. The countries have either abandoned or are in the process of abandoning state control and ownership of major sectors. They have transparent and modern financial systems. They have a skilled but modestly compensated labor force.

THE GLOBAL CONTEXT

Emerging markets may be seen as a global natural phenomenon in which waves of economic development lift different countries in sequence to a higher level. The "economic miracle" of the German economy after World War II marked Germany's recovery from the destruction of Allied bombing with the help of aid and the inflow of foreign investment; Germany lead the recovery of Europe; Japan's rise—and the rise of the Asian "Tigers" (Hong Kong, Taiwan, Singapore, and South Korea)—followed in turn. Latin America developed by exploitation of its agriculture and oil resources. The collapse of Communism led to liberalization of East European economies and the emergence of new market economies there, initially in Poland, then elsewhere. This process indirectly stimulated Chinese liberalization of its economy (if not its politics) producing the rise of China to economic eminence in the 2000s. The process, however, has not been without its ups and downs. As Gill Tudor documented in her book, Rollercoaster: The Incredible Story of the Emerging Markets, a Mexican monetary crisis beginning in 1994 produced a global crisis of confidence in emerging markets which spread throughout Latin America and from there eventually touched all of the emerging markets. But the emerging markets recovered from the panic in part through the intervention of the "mature markets" which adjusted their investments and refinanced emerging market debt.

THE LOCAL CONSEQUENCES

In the context of major international trade agreements, like the North American Free Trade Agreement (NAFTA), emerging markets are presented to the U.S. public as opportunities for export—and therefore a vibrant domestic economy. However, the globalization of modern, technological economies is an adjustment process that has local costs for mature economies which may be higher than benefits achieved.

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