What are the signs of new emerging markets?

There are two possible causes for the creation of emerging markets: the failure of state-led economic development and the need for capital investment.

First, state-led economic development fails to produce sustainable growth in the traditional developing countries. This failure and its tremendous negative impact pushes those countries to

a)  adopt open door policies, and

b)to change from the state’s being in charge of the economy to facilitating economic growth along market-oriented lines.

Second, the developing country needs capital to finance their development, but traditional government borrowing fails to fuel the development process.

Developing external investment

In the past, the governments of the developing countries borrowed either from commercial banks or from foreign governments and multilateral lenders like the IMF and the Word Bank. This route however leads to a heavy debt overload and leads to a severe economic imbalance.

The past track record of many developing countries also demonstrates the inability of their government to efficiently manage and operate the borrowed cash to support economic growth. Because of the unsatisfactory results of government borrowing, developing countries begin to rely on equity investment as a means of financing economic growth.

They seek to attract equity investment from private investors who become their partners in development. But to attract equity financing, a developing country has to establish the preconditions of a market economy and create a business climate that meets the expectations of foreign investors. This change in financing sources thus becomes another factor leading to the rise of emerging markets.

This development process is one model of the rise of emerging markets, proposed by Chuan Li at a meeting at the University of Iowa Center for International Finance and Development.

So if you want to spot the next emerging market, you now know the signs to look for.

Andre Davidson at Emerging markets blog, christmas related articles, is it possible to make money from domain parking?

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