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Journal of Economic Regulation, 2022,13(1): 20-32 DOI: 10.17835/2078-5429.2022.13.1.020-032
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EMERGING MARKETS: CONCEPTS AND DETERMINANTS OF DEVELOPMENT
OLGA S. STRELCHENKO,
Kobe International University 9-1-6, Koyocho-naka, Higashinada-ku, Kobe, Japan, e-mail: [email protected];
ELENA A. STRELCHENKO,
Southern Federal University, Rostov-on-Don, Russia, e-mail: [email protected];
VERA V. KOT,
Southern Federal University, Rostov-on-Don, Russia, e-mail: [email protected]
Citation: Strelchenko O.S., Strelchenko E.A., Kot VV (2022). Emerging markets: Concepts and determinants of development. Journal of Economic Regulation 13(1): 20-32 DOI: 10.17835/20785429.2022.13.1.020-032
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m the study of the concepts, causes, and factors of this phenomenon. Although developed economies
The gap in economic development between developed and developing economies has actualized
demonstrate a high GDP per capita, emerging markets are growing at a faster rate. Emerging markets are countries with market economies and possess institutions and standards inherent in developed countries. However, the maturity and quality of these institutions do not fully comply with those in ^ developed countries. Meanwhile, the economic growth rates of emerging markets are significantly higher than those of developed markets. This study analyzes emerging markets and the problem of their income gap compared to developed countries from various economic approaches, including classical mercantilism, liberalism, Marxism, and modern-dependency theory. In addition, the authors analyzed the role of globalization, its impact on emerging markets, and the causes of economic instability and z development. Furthermore, the study considers general trends inherent in developed and developing p countries and specific ones characteristic only for emerging markets.
Acknowledgments: This work was partially supported by JSPS KAKENHI (grant number 21K20143).
0 Keywords: emerging markets; developing countries; developed countries; economic development ct trends; differentiation of countries
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РАЗВИВАЮЩИЕСЯ РЫНКИ: КОНЦЕПЦИИ И ДЕТЕРМИНАНТЫ РАЗВИТИЯ
СТРЕЛЬЧЕНКО ОЛЬГА СЕРГЕЕВНА,
Международный университет Кобе, Кобе, Япония, e-mail: [email protected];
СТРЕЛЬЧЕНКО ЕЛЕНА АЛЕКСАНДРОВНА,
Южный федеральный университет, Ростов-на-Дону, Россия, e-mail: [email protected];
КОТ ВЕРА ВИТАЛЬЕВНА,
Южный федеральный университет, Ростов-на-Дону, Россия,
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e-mail: [email protected] см
Цитирование: Strelchenko O.S., Strelchenko E.A., Kot VV (2022). Emerging markets: Concepts and determinants of development. Journal of Economic Regulation 13(1): 20-32 DOI: 10.17835/20785429.2022.13.1.020-032
Существующий разрыв в экономическом развитии между развитыми и развивающимися странами актуализирует изучение понятий, причин и факторов этого явления. Несмотря на то, что развитые экономики демонстрируют высокий уровень ВВП на душу населения, развивающиеся рынки часто показывают более высокие темпы роста. Развивающиеся рынки - это страны с рыночной экономикой, обладающие институтами, присущими развитым странам. Однако, зрелость и качество этих институтов не в полной мере соответствуют уровню развитых стран. В этом исследовании анализируются развивающиеся рынки и проблемы разрыва в их доходах по сравнению с развитыми странами с точки зрения различных экономических подходов, как классических, так и современных. Кроме того, авторы проанализировали роль глобализации, ее влияние на развивающиеся рынки, а также причины экономической нестабильности и факторы, способствующие их экономическому развитию. Кроме этого, в исследовании рассматриваются как общие тенденции, присущие развитым и развивающимся странам, так и специфические, характерные только для развивающихся рынков.
Ключевые слова: развивающиеся рынки; развивающиеся страны; развитые страны; тенденции экономического развития; дифференциация стран
Introduction
Emerging markets are countries with a market economy integrated into the world economy, whose development standards do not fully correspond to developed countries, and institutions are not fully formed. The fastest developing economies were BRICS countries (Brazil, Russia, India, China, and South Africa). The most common criterion for classifying a country as an emerging market is financial media, such as The Economist, and the institutions of stock indices (Morgan Stanley Capital International). In addition, the economies of such countries are significantly dependent on the raw material sector, agriculture, characterized by a low level of technological development. Therefore, emerging markets have a lower GDP per capita; however, economic growth rates are higher.
There is a growing gap between developed and developing countries (fig. 1), and it is unlikely that most developing countries will catch up with developed countries soon.
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Moreover, the current economic crisis associated with COVID-19 has exposed crucial and urgent issues in developing nations. For example, low-income countries face a decline in external demand, falling commodity prices, a sharp decline in tourism activity, and a weakening of foreign direct investments. According to Wennekers et al. (2005), this is one of the main factors for ensuring economic development in developing countries, a sharp increase in the cost of borrowing, and the expected decline in remittances, a key source of foreign finance and household income support in many countries. These results have been shown in many recent empirical studies (Usman, 2020; Manandhar et al., 2020).
Fig. 1. Real GDP growth rate in developed and developing countries, % Source: Compiled by the authors based on (IMF, 2022).
However, to understand the reasons for the lag in development and the actual state of affairs, it is first necessary to analyze the roots of the difference in development between countries. In this study, we analyze the issues in emerging markets using different economic approaches. We start with a brief review of approaches that explain interdependence and the current state of affairs in developing and developed countries and the reasons that contributed to this difference in development.
In the first stage, we go through the most traditional paradigms and then analyze the problem through more contemporary approaches. We begin by exploring how traditional paradigms of the international political economy explain the difference in development between core countries and the periphery.
Before analyzing emerging markets through major traditional paradigms (mercantilism, Marxism, and liberalism) in the international political economy, we introduce some fundamental differences that determine their features. First, the difference among these approaches is related to the relationship between policy and the economy.
The research methodology includes the analysis of academic literature indexed in the scientific databases Scopus, Web of Science, empirical data, and analytical reports of international institutions, such as the international agency MSCI Barra, the World Bank, the International Monetary Fund, and others.
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Approaches to the study of the economic gap between developed and developing countries
Relations between Core and Periphery in international political economy are tackled by different approaches. Mercantilists assumed that a policy-determined economy; on the contrary, economists who represented the Marxism paradigm supported the view that the economy was initial and policy depended on it. However, according to liberalism, there is no direct link between economic and political spheres. Second, these paradigms are distinguished based on their attitudes toward the role of the state (government) in the economy. Mercantilists advocated for a strong state that directly controlled economic spheres such as
international trade, deciding the countries they had trade relations with, protecting national entrepreneurship, and implementing the policy of protectionism. However, representatives of liberalism supported the free market and declared the devolution of artificial obstacles and barriers. They believe that if there is no interference from the state, the market would best manage the economy. In Marxism theory, the state played the role of an instrument of capitalists, helping them control others. Third, and possibly the most important thing that distinguishes these paradigms from each other, is an answer to the question, "what makes nations richer?" What did they do to succeed in comparison with others? Mercantilists believed in the balance of the trading system, meaning that a nation was successful when its exports were greater than imports. This theory was widely used in Spain and Portugal. Nevertheless, their ability to accumulate gold and silver without real production resulted in a severe economic crisis.
Liberalists found the source of wealth in the free market that allowed people to produce and consume necessary goods and services. Furthermore, liberalism, starting from its early representatives such as David Ricardo, has argued that international trade and international specialization based on comparative advantages is mutually beneficial for the countries.
According to Marxism, the central place in economics was the conflict between two classes and capitalists and proletariats. Their struggle became an "engine" of economic growth and g social development. Therefore, the main purpose was to minimize the gap between them.
One of the traditional theories to understand relations between developed and developing nations is the Dependency Theory. It focuses on why some countries (The South or the "periphery") depend on others (The North or the "core"), even though some of the periphery countries became independent two centuries ago (e.g., countries of South America). According to dependency theory, one of the reasons for development differentiation is that industrialized countries dominate the political and economic institutions of developing countries, for instance, by corruption and nepotism among local elites. For developed countries, modernization and economic growth in developing countries are not beneficial since high-income countries may lose control over developing countries, traditionally a key to fast economic growth and the development of the North. However, core countries can benefit when the periphery remains m undeveloped because of cheap labor and low environmental requirements. Moreover, core governments and multinational companies encourage bad institutions and mismanagement. Even if the government of a developing country tries to change the situation to reduce this gap between the core and periphery, elaborating sovereign economic policy, the core may create barriers for economic activity; imposing sanctions. Furthermore, recent empirical studies, such as Romaniuk et al. (2019), show that economic growth and development of the periphery decrease in distance from the core. This may explain why central and west
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landlocked Africa are listed as the least developed countries. With the Human Development o
Index (HDI) close at the bottom of countries ranking, according to the Human Development ^
Index in 2020, Niger is the least developed country globally with an HDI of 0.354. African o
republic has an HDI of 0.361, and Chad, one more landlocked and geographically distanced § country, is currently at the third rank from the bottom with an HDI of 0.404 (The Human
Development Indexed, 2021). a:
Next, we observe a capitalist world-economy model explaining how the world has become ^
a modern state divided into advanced and developing countries. The main idea behind this o
theory is that the modern international economic system is a continuation of the previous o
single capitalist economic system. According to this theory, to understand processes that w
occur today or in the 20th century, it is necessary to look at the history of the capitalistic o
world beginning in the 16th century. A capitalist world-economy model is a helpful tool. It <
shows us the evolution of relationships between core and periphery, allowing the prognosis Q^
of future changes between advanced and developing economies. °
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Two centuries ago, there were no striking differences in income levels between countries. The difference was no more than 30%. Nevertheless, in the middle of the 19th century, the industrial revolution, a crucial process, seriously influenced the distribution of wealth worldwide. It began in the UK and brought tremendous benefits, followed by the intensification of the income gap. To better understand the reason it happened, it is necessary to look briefly through the Industrial Revolution. The Industrial Revolution was a transition to new manufacturing processes. It covers many aspects of life, but the most important is moving from manual production to machinery, increasing labor productivity. Pioneers of industrialization created competitive advantages, resulting in a serious gap between them and others. Since then, the income gap has significantly increased; in 1820, the income gap between the poorest and richest countries was 1-3. Currently, it has grown to 1-92. Nevertheless, this process is not as simple as the growing line. We should consider the changes in the composition of the group of countries. At the beginning of the industrial revolution, the countries that first stayed on the path of modernization (the UK, France, etc.) were the leaders. Still, they were pressed by countries that followed them in modernization (the USA, Germany, and Japan) in the second half of the 19th century.
A serious impact on world wealth redistribution occurred due to the world wars and the collapse of empires (Russian, Austro Hungarian, and Ottoman). After the 2nd World War, economic leadership was taken over by the United States since many European countries and the USSR were economically devastated. Therefore, the financial capital was mainly accumulated in the USA. However, after the recovery period, Japan and Germany experienced rapid economic growth - economic miracles that reinforced competition among the developed countries (fig. 2). In addition, rapid income growth occurred in South Korea and Taiwan.
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□ 2021 02022 (forecast) S2023 (forecast)
Fig. 2. Real GDP growth rate in developed countries, % Source: Compiled by the authors based on: IMF, 2022.
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These nations underwent a modernization process of economies and achieved higher growth rates. Therefore, the developing counties became more heterogeneous, with some countries approaching a level of wealth similar to that of developed countries. In addition, striking changes occurred in the Near East, opening new oilfields in this region (Table 1). Abundant natural resources, particularly its further production and exports, positively impacted economic growth, supported by empirical studies (e.g., Upreti, 2015). The nations mentioned above achieved stable economic growth and improved living standards in a relatively short period. However, these specific examples do not imply that, in general, the gap between developed and developing countries tends to decrease. There is still a long list of countries with extremely low incomes per capita. Thus, the income gap is expected to increase.
Table 1
GDP growth rate per capita, current prices (US dollars per capita)
Growth rate, 2020/2019; % Growth rate, 2021/2020; % Growth rate, 2026/2021; % (forecast)
Global average -3,7 10,7 27,9
Advanced economies -2,7 10,5 26,1
USA -2,6 9,5 24,6
Germany -1,2 9,9 27,6
France -4,0 11,7 23,0
Italy -5,7 12,6 23,8
Spain -8,1 12,4 29,0
Japan -1,5 1,5 27,3
Great Britain -4,8 14,4 31,2
Canada -6,7 21,9 23,9
Other advanced economies -1,4 13,4 25,9
Emerging economies -4,2 12,0 36,1
Asian countries: -0,7 9,9 37,4
China 3,4 13,1 47,1
India -8,1 9,7 42,6
ASEAN-5 -5,8 7,4 40,6
European countries:
Russia -12,2 11,4 18,9
Latin America and the Caribbean: -17,6 14,3 28,4
Brazil -23,6 13,5 41,1
Mexico -16,2 18,6 24,4
Middle East and Central Asia: -4,1 16,1 19,3
Saudi Arabia -13,7 18,8 8,1
Sub-Saharan Africa: 824,3 -89,0 35,9
Nigeria -6,6 9,1 69,6
South Africa -14,8 1119,9 -88,1
Source: Calculated by the authors based on the World Economic Outlook Database-October 2021. International Monetary Fund, 2022.
Liberalism and its descendant neoclassical theory are paradigms that help us understand these processes. Both paradigms explain the economic growth and distribution of wealth between countries by differences in the labor productivity, efficiency of capital implementation, and implementation of new technology, resulting in modernization. As an illustration, we can use the traditional Cobb—Douglas production function Y = A Ka iP. where Y is total production, A is the technology coefficient, L is labor, K is capital, and a and 6 are the output elasticities of capital and labor. This traditional model shows that wealth, derived from income, positively depends on the technological level. However, the positive impact of technology is not unconditional. For instance, Fu et al. (2011) argued that international technology diffusion benefits developing countries only under sufficient innovation efforts, modern institutions, and governance structures. Additionally, the impact of technological
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progress on economic development may vary across industries. For instance, Thirtle et al. (2003) disclosed that technological change in the agricultural sector contributed to poverty reduction. In contrast, this study did not reveal substantial effects of productivity growth in the industry on poverty.
The role of globalization and its impact on emerging markets
Here, we compare different perspectives on globalization and relate them to traditional major paradigms in the international political economy. To proceed to more relevant approaches to the existing differences in development between developed and developing countries, we examine the phenomenon of globalization, crucially impacting the processes in the global economy. There are two main perspectives on globalization: pro-globalizers and anti-globalizers. Both approaches reckon that we live in conditions of globalization. However, they differ strongly in their evaluation of globalization (whether it is good or not) and in their policy positions.
Pro-globalizers argue that:
1) Globalization is a positive process for the whole world, and the current level of its spread is insufficient; thus, the world community should encourage its ongoing growth.
2) The government should reduce all borders and encourage free markets; in this case, cm globalization will enhance the material well-being of the world population, including both cm developed and developing nations.
^ 3) Globalization is a method of solving crises and inequalities in society.
2 From the standpoint of the anti-globalists:
■h 1) globalization is a destructive process, and it is too widely spread in result, we should
0 reject it and return to local economies;
2) free markets lead to extending of inequalities in society and reduce the welfare of most ® part ofpeople except privileged ones;
1 3) globalization is not a solution but a major problem. According to this, it is clear that these perspectives are derived from traditional major paradigms in the international political economy: the first one (pro-globalizers) was influenced by liberalism with its theory
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m of free markets, and the second one (anti-globalizers) was influenced by Marxism; capitalism
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and its free markets lead to the exploitation of impoverished people by rich ones, increasing inequality in society.
^ Trends relevant for emerging markets
^ It is necessary to describe two relevant global trends: internationalization and
3 regionalization, to analyze globalization in developing countries. First, as an example of the former, most emerging markets are used as sources of cheaper resources on a global
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o scale. For example, India has become a source of a low-cost but high-skill labor force in the "" IT-sphere. The labor force from India can be found in IT in many developed countries. The o qualification of this labor force is high, as education in the IT-sphere has been developed <5 in India. However, wages are lower than those of employees in developed countries. Thus, Indian workers acquire competitive advantages in global labor markets because of the balance between quality and cost for employers. This process encourages international connections between countries. This assessment is also supported by Docquier and Rapoport o (2012), suggesting that high-skill migration, including developing countries, is an important o part of globalization. Internalizing trends have become widespread in emerging markets lli because it is easy to improve internal situations. In India, with more than 1 billion people, o internalizing is a solution to the problem of overcrowding in the domestic labor market and < a way of improving the standard of living.
Qc Second, regionalizing is developed countries creating unions to solve mutual economic,
° social, or political problems. Examples include the European Union (EU) and the North
American Free Trade Agreement (NAFTA). Nevertheless, regionalizing also spreads among developing countries, such as the post-Soviet countries (Eurasian Customs Union) and Latin American countries (Mercosur). These unions allow countries to protect their domestic producers from more advanced competitors from other countries and encourage trade and exchange of labor forces within unions. Such regional unions play the role of counterbalancing the influence of global organizations, unions, and multinational companies as their influence might be controversial. For instance, Rodriguez-Clare (1996) evaluated the impact of multinationals on the economic development of developing countries through the generation of linkages. They showed that multinationals might positively affect economic development in the production of final goods under certain conditions, such as the intensive use of intermediate goods produced in developing countries. However, if these conditions are violated, the impact may be negative.
In addition to the main trends for emerging markets, internationalization and regionalization are particularly important rapid urbanization in the developing world and deindustrialization. The spread of market liberalism coincided with highly unequal income and wealth distribution patterns. The exports and imports of goods and services in GDP doubled from 20% to nearly 40% in developing countries. Economists worldwide view weak global demand results in declining commodity prices, whereas asset prices increase.
Moreover, both developed and developing countries are characterized by the following trends:
First, is the growing global economic imbalance. Imbalances have been observed between different countries and spheres of economic activity. This trend covers many aspects and can be considered the common name of the world economy today. Overall, this means that the development of the world economy continues to be unsustainable, despite efforts toward sustainable development. Even though some developing countries have shown significant results, there is still a huge gap between developed and developing nations, especially living standards. Moreover, there are examples of strictly imbalanced development even in one region. For example, some developing Southeast Asian countries show growth based mostly on domestic demand, while Thailand experienced stagnation caused by a political crisis.
Table 2
Dynamic of economic growth in East Asia in 2014-2019, %
2014 2015 2016 2017 2018 2019 2020
China 7,3 6,9 6,7 6,8 6,6 6,1 2,4
Japan 0,4 1,2 0,6 1,9 0,8 1 -4,6
Republic of Korea 3,3 2,8 2,9 3,1 2,7 2 -0,85
Hong Kong China 2,8 2,4 2,2 3,8 3 -1,2 -6,08
Singapore 4,1 2,5 2,8 3,9 3,1 0,6 -5,4
Malaysia 6 5,1 4,2 5,9 4,7 4,5 -5,7
Indonesia 5 4,9 5 5,1 5,2 5,1 -2
Thailand 1 3,1 3,4 4 4,1 2,6 -6,1
Philippines 6,1 6,1 6,9 6,7 6,2 6 -9,6
Vietnam 6 6,7 6,2 6,8 7,1 6,9 3
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Source: Compiled by the authors based on: (Potapov, 2020; Asian Development Outlook, 2019; Asian Development Outlook Supplement, 2019; Key Indicators for Asia and the Pacific, 2019; Economic growth in Asia, 2021 (https://ru.theglobaleconomy.com/rankings/Economic_growth/Asia/).
Second, developed and developing countries are socially and environmentally fragile. Unstable ecological and social situations are the reasons for social responsibility, and environmental
problems have become widely discussed. Recently, social and ecological responsibilities have been considered by governments and enterprises of developed and developing countries, becoming important centers of the world economy with complex production processes that require attention toward social and ecological responsibilities. For instance, companies in Malaysia, transitioning from an agriculture-based economy to an industrialized economy, focus on alleviating environmental issues and providing economic and social benefits (Zailani et al., 2012).
The third is persistent financial instability. In the past two and a half decades, the world economy has endured financial volatility. The Asian financial crisis in 1997, the global financial crisis in 2008—2009, and the collapse of the national currencies of Russia and Turkey in 2015—2016 testify to the interdependence of the world financial system and a high level of instability. Furthermore, the economic crisis caused by COVID-19 has extended this trend. Consequently, financial instability results in distrust toward financial instruments and institutions and cuts out investments (fig. 3). Lane and Milesi-Ferretty (2007) show the importance of financial equity.
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Fig. 3. The level of distrust toward financial institutions in developing countries Source: Compiled by the authors based on: Economic growth in Asia, 2021 (https://ru.theglobaleconomy. com/rankings/Economic_growth/Asia/).
The next trend is the rapid urbanization of developing countries due to economic growth. Many theoretical and empirical studies have analyzed the problem of rural-urban migration (Harris and Todaro 1970, Corden and Findlay 1975, Zhang and Song, 2003, Christiaensen and Todo (2014), and Abe and Strelchenko, 2021, etc.). They argued that economic growth and increased expected wages in urban areas encourage the migration of labor forces from rural toward urban areas. In addition, the high speed of information spread, high accessibility, and decline of transactional costs contribute to the attractiveness of agglomerations for population and business activities in developed and developing countries. However, while urbanization of core countries has been gradual, this process is often abrupt and spontaneous in developing countries, resulting in more challenging adaptation and a lack of infrastructure. Moreover, developed countries with a high population density in urban areas have appropriate institutions and resources to operate efficiently.
The fourth trend is the deindustrialization of developed countries, increasing the impotence of services in GDP. Developed countries are called post-industrialized ones, where over 80% of the economy is concentrated in services, and information became an important asset. Therefore, the real economic sector has been concentrated mostly in developing countries. This is because of cheap labor and initially non-strict environmental regulations in developing countries. Thus, the deindustrialization of developed countries results in the
industrialization of developing countries. This, according to Haraguchi et al. (2017), has continued to play an important role in the growth of developing countries.
Next, the increasing gap between income and wealth is a widespread trend, resulting in an unbalanced economic structure. Regarding the domestic distribution of wealth, one of the most unequal societies among the developed countries is the USA, where the Gini coefficient, according to the UNO, is 0,40. Nevertheless, in China, it is estimated at the rate of 0,47. Based on the UNO s data, there is a tendency: the poorer the country, the bigger the difference in wealth between the poor and rich. In countries such as Guinea-Bissau, the Gini coefficient was higher than 0,8 (Table 3).
Table 3
Gini index in different countries, 2018-2019
Advanced economies Index Emerging economies Index
USA 41,4 China 38,5
Germany 31,9 India 35,7
France 32,4 Russia 37,5
Italy 35,9 Brazil 53,4
Spain 34,7 Mexico 45,4
Japan 32,9 Saudi Arabia 46
Great Britain 35,1 Nigeria 35,1
Canada 33,3 South Africa 63
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Source: Compiled by the authors based on the Gini index (World Bank estimate), 2018—2021 (https:// worldpopulationreview.com/country-rankings/gini-coefficient-by-country).
Finally, experts have observed weak global demand for commodities in the past few years. This results in deteriorating performance in developing countries. Most of them, such as China and India, must encourage domestic demand and investment to support economic development. Moreover, the abrupt fall in oil prices has become a huge problem for oil-dependent economies, such as Russia. It has resulted in the devaluation of the national currency and the appearance of signs of recession (fig. 4). Thus, it is apparent that the threat of a serious regional economic crisis is the biggest in the transitive economies of post-USSR countries. Low oil prices and geopolitical situations may lead to the intensification of the economic crisis. Moreover, all economies in this region are closely related. There is a net of economic and social bounds among them. Therefore, an economic crisis in one country in this region could rapidly transit into others.
Fig. 4. Real GDP growth rate in developing countries, % Source: Compiled by the authors based on: IMF, 2022.
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UNCTAD (2014) offers a way to improve economic performance. World organizations and national governments should follow a balanced growth scenario instead of a baseline scenario that promotes a "business-as-usual" policy. By contrast, the balanced-growth scenario promotes the idea of sustainable development and is based on the following elements:
• income policies that support the sustainable growth of demand;
• growth-enhancing fiscal policies;
• industrial policies that encourage private investment and structural transformation;
• systematic regulation of financial institutions and capital to stabilize global financial markets;
• development-oriented trade agreements.
The United Nations Conference on Trade and Development (UNCTAD) also promoted the structural transformation of the economy and trade regulation that encouraged the development and improvement of financial institutions.
Causes of economic instability and policies toward illumination
We provide specific reasons for instability and possible policies to stabilize emerging markets in their proper implementation.
1. Many developing countries are dependent on traditional sectors. When aid from other cm countries is volatile, developing countries experience a decline in macroeconomic performance cm and domestic investments. Therefore, we can underline the importance of long-term sustained ^ investments in the traditional spheres of developing countries, such as the agricultural sector, and in new ones. Popova et al. (2016) analyzed the effects of nanotechnologies on the economic ■h development of developing countries using Russia as an example. However, this does not imply o that traditional sectors remain underdeveloped. By contrast, Dethier and Effenberger (2012)
argued for rural development to ensure security in developing countries. ® 2. Additionally, emerging markets are sensitive to the impact of external instability
g and foreign aid. Therefore, it is preferable to reconsider economic policies to partly reduce dependence on external aid and debt.
3. Many emerging markets specialize in exports, depending on global prices for exported
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m commodities. This is especially risky when a developing country exports only a limited number of
commodities. In this case, diversification of the economy and assets would eliminate instability.
4. For developing countries, the main risks are trade commitments and the way in which they establish trade barriers. This deepens the gap between developed and developing countries. Trade liberalization control in developing countries was observed in the empirical study by Yanikkaya ^ (2003). The study posits that trade barriers positively correlate with growth, especially in developing countries. Therefore, considering the real state of affairs in developing countries, trade agreements must be established cautiously to benefit developed and developing nations.
O O
o 5. International reserve system not based on national currency results in dependence on
"" the exchange rates.
o Economic development implies a decline in poverty within a country. However, arguably,
<5 eliminating poverty alone is not enough to achieve stability. It is also crucial to improve social and technological productivity. This, by term, requires economic structural transformation by implementing effective institutions and mechanisms. Many studies have tracked the positive effect of good institutions on economic development; for instance, Acemoglu et al. (2001) and o Rodric et al. (2004) showed the importance of institutions in economic development. o
LU Conclusion
o This study draws the following conclusions, increasingly updated under the influence of
< COVID-19.
Qc The study of various emerging markets allows us to understand the nature of the
° relationship between economic growth in developed and developing countries. From the
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cc o
standpoint of mercantilism, international trade and a positive trade balance are the sources of national wealth. According to liberalism, the main source of economic development is the free market and the comparative and absolute advantages in international trade. From the standpoint of Marxism, the successful economic development of countries is based on the conflict of two classes - the capitalists and the proletariat. Therefore, the main goal was to minimize the gap between them. Liberalism advocates a free market, attributing economic growth and the distribution of wealth among countries to differences in labor productivity, capital efficiency, and the introduction of new technology that leads to modernization. According to the dependency theory, one reason for the different development (South or "periphery"; North or "core") is the dominance of industrialized countries in the political and economic institutions of developing countries. Therefore, for developed countries, modernization and economic growth in developing countries may not be beneficial. Thus, major governments and multinational companies have encouraged implementing inefficient institutions and mismanagement. Globalization has a significant impact on processes in the global economy. From the perspective of pro-globalists, globalization is positive for the whole world. It requires constant expansion, reduction of borders, and promotion of free markets, thus increasing economic prosperity and reducing inequality in developed and developing countries. Anti-globalists believe that globalization is a destructive process that needs to be curtailed, as it contributes to growing inequality and lowers social welfare. g
The current trends in emerging markets are internationalization, regionalization, 04 urbanization, deindustrialization, growing global economic imbalance, ecological and social problems, permanent financial instability, widening income and wealth gaps between developed and developing countries, and weak global demand.
In conclusion, to reduce the income gap between developed and developing countries, it is necessary to modernize technologies. Still, modernization of production or new technologies and the institutional modernization of society is of decisive importance.
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