Evaluating Emerging Markets in the Post-Crisis Period: A new methodology
The 2008-2009 global recession and ongoing financial crisis has been a transformative epoch. The conventional wisdom is that while the developed nations have clearly come out of the crisis significantly weakened both economically and financially, the emerging markets have sailed through the crisis with little collateral damage. The author finds this is not necessarily the case and develops a new research methodology to evaluate emerging economies in the post –crisis period.
The paper lists the five economic drivers that will differentiate emerging market winners from losers. These are:
Technological adaptability – There is early evidence that the “digital divide” between developed and developing nations is quickly narrowing since the financial crisis and a “leapfrog effect” is well underway in some emerging markets.
Commodity Dependence – Much of the emerging world consists of commodity-dependent exporters. The bull market in commodity prices last decade was historically unprecedented and delivered over-sized gains that are unlikely to replicated anytime soon.
Financial Freedom – Deepening financial markets has always been a necessity for developing economies. The post-crisis financial regulatory regime is threatening to stranglehold financial freedom but nations that manage to liberalize in this environment will gain enormous advantages.
Credit Quality – While the financial crisis has caused credit conditions to deteriorate enormously for developed economies, the emerging economies sailed through it reasonably well. But did having an “easy ride” cause some emerging markets to neglect their own domestic finances?
Institutional Reform – The quality of a nation’s institutions has always been paramount for economic development and avoiding the middle income trap. With last decade’s emerging market tailwinds largely gone, they are now even more critical in sustaining economic growth.
The author concludes with the analysis of short- and long-term economic perspectives for the emerging markets, pointing out economic factors that need the most attention from the public and private sectors.