Diversification of the economies worldwide is a recent phenomenon. Countries have defied social and political barriers to become developed and serve their nationals better.
This diversification has led to a divisive classification of the countries based on their growth. Financial organizations worldwide are keen on introducing measures that allow for the sustained growth of all economies.
In 2009, the International Monetary Fund’s World Economic Outlook classified countries as advanced, emerging or developing based on the following criteria :
- Per capita income
- Export diversification
- Degree of integration in the global financial system
Confusion prevails over whether developing countries and emerging markets are the same. One can partially attribute this confusion to the fact that emerging markets are a classification of developing countries.
Though both of the above have lower ratings in the social and economic arena, they are not the same compared to developed countries.
- Developing countries are the countries that have less developed industrial bases alongside lower standards of living. They are striving to become better with the help of other strong economies.
- Emerging markets are the countries that have stepped aside from the traditional mediums of sustenance and have witnessed massive economic growth.
- Developing countries have lower income levels, industrialization, and human development; emerging markets are nations experiencing rapid growth and increasing global economic integration.
- Developing countries can include nations with various economic statuses; emerging markets demonstrate strong growth potential and investment opportunities.
- Developing countries may face various challenges, from infrastructure to education; emerging markets often attract foreign investment and experience economic liberalization.
Developing Countries vs Emerging Markets
The difference between Developing Countries and Emerging Markets is that while developing countries have weak trading ties due to being primarily engaged in agriculture and indigenous industries, emerging markets have undergone high economic development owing to industrialization.
|Parameter Of Comparison||Developing Countries||Emerging Markets|
|Definition||Developing countries are the countries that have not seen any significant growth in their economy due to sticking to traditional growth practices such as agriculture.||Emerging markets are the countries that have witnessed massive economic growth due to the development of industrial and technological sectors.|
|Extent of Industrialization||Industrialization is limited in developing countries due to the government’s apprehensions regarding investment in the global market.||Industrialization is vital to emerge markets as they have leveraged this factor for economic growth.|
|Export Conditions||Developing countries have less favourable export conditions due to unfavourable trade terms, mounting import needs, and depleting foreign exchange coffers.||Emerging markets are more favourable to exports due to business-friendly policies, increased domestic production, and less reliance on agriculture.|
|Position in Global Finance||In the global financial scenario, developing countries are characterized by less foreign investment, trade deficits, currency devaluations, and high inflation rates.||In global finance, emerging markets reign due to high foreign investment, surplus trade, healthy cash balances and access to cheap capital.|
|Volatility and Instability||Here, the causes of volatility and instability are propensity to currency, financial crises, and political unrest.||Here, the causes of volatility and instability are unstable governments, economies based on a few industries, and capital outflows.|
What are Developing Countries?
A developing country is also called a low and middle-income country (LMIC) or a less economically-developed country (LEDC). It is characterized by a less developed industrial base and a low Human Development Index (HDI).
International finance and development organizations have classified the division of developing countries into :
- Newly industrialized countries
- Emerging markets
- Frontier markets
- Least developed countries
In the most basic sense, developing countries include the countries that employ indigenous livelihoods as the financial driver of the nation. They achieve this through agriculture, artisanship, and other local trades.
These countries have weak economic growth and generally low standards of living. Other problems include illiteracy, lack of sanitation, and political upheaval.
They generally have trade deficits and seek support from other developed countries. However, many developing countries have transformed into emerging markets by employing a sound economic approach.
What are Emerging Markets?
An emerging market, such as the UAE and Chile, is also called a rapidly developing economy. These countries are a subpart of developing countries.
Emerging markets have relied on industrialization and IT and telecommunication sector improvements for economic growth. The idea here is to produce a surplus for domestic needs and export the extra for fiscal advantage.
Emerging markets are the newly industrialized countries that have increased productivity through technological innovations. In Asia, China and India are major emerging markets.
These countries are more trade-friendly due to their calculated policies, healthy cash balances, and cheap labour and capital. They, therefore, leverage high foreign investment and employment growth.
However, fluctuating economic policies due to changing governments and social unrest make them non-ideal for foreign traders. Also, they have low per capita income and environmental issues due to industries shifting from developed countries.
Main Differences Between Developing Countries and Emerging Markets
Developing countries constitute those that couldn’t make it to the list of developed countries. They include emerging markets that are on the threshold of becoming developed.
- Developing countries are at the backdrop in growth due to limited investment in globalization, whereas emerging markets have witnessed high economic growth due to technological innovations.
- Developing countries have employed little to no industrialization, whereas emerging markets have used automation to improve employment for the masses.
- Developing countries cannot export commodities due to a deficiency in meeting domestic demands. On the other hand, emerging markets have adequate production to meet domestic and export requirements.
- Developing countries have less foreign investment, trade deficits, and higher inflation rates, whereas emerging markets have high foreign investment, trade surplus, and cheap capital.
- The developing countries are fraught with financial crises, empty coffers, and insurgencies. On the other hand, emerging markets suffer from fluctuating economic policies and social and political unrest.
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Chara Yadav holds MBA in Finance. Her goal is to simplify finance-related topics. She has worked in finance for about 25 years. She has held multiple finance and banking classes for business schools and communities. Read more at her bio page.