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Emerging Economies - Gaining global supremacy

Posted in Finance Articles, Total Reads: 5813 , Published on July 26, 2011

The twentieth century saw the world being divided into two distinct parts- the developed countries and the underdeveloped or developing countries. Industries, business, progress was confined to only a few economies as they had the financial strength, the knowledge and the man power to take them on a progressive path. The industrial revolution benefitted only a few countries and the rest of the world struggled for mere existence. However, the scenario completely changed in the beginning of the 21st century. With more FDI's in developing countries, liberal policies, booming industrial growth and skilled workforce, the emerging economies have become a force which the developed super powers cannot ignore.


Emerging Economies

The combined GDP of the emerging economies accounted for more than half of the total GDP (in terms of purchasing power parity) of the world. This milestone challenged the supremacy of the developed countries by showing that they no longer dominate the rules global trade. The impact of the growth of emerging economies is visible on developed countries' inflation, interest rates, profits, salaries etc. This tremendous upsurge by the developing economies is diminishing the lines between the haves and the have not’s very quickly, and providing a huge boost to the world economy.


This new revolution has taken the world economies by a storm as their influence explains a lot of puzzling developments like high oil prices with low inflation, high share of profits in national income, slow growth in wage rates, lower global interest rates and also financial problems like recession.


By the beginning of the 21st century, emerging economies command the global exports which have doubled to over 45% from 20% in thirty years. Emerging economies have more than three-fourth of the foreign-exchange reserves, consume more than half of the world's energy and account for over 80% growth in oil demand for their consumption. However, the emerging economies are booming only in terms of purchasing power parity but at market exchange rate, their share is still less than one-third.


Indian economy and Chinese economy are the two prominent emerging economies which are growing strong in all the sectors including banking, industrial growth, nuclear operations, IT etc. These two have consistently recorded a growth in their GDP even when the global recession was hurting the rich countries. The IMF and World Bank forecasts that these two will emerge as global super powers and would control the rules of trade if they keep going at this rate.


The high growth of the emerging economies has increased the global GDP by an average of 3.2% a year as compared to 2.9% annual growth when Europe and Japan were rebuilding their economies post the 2nd world war.


However, financial instability hampers the growth in emerging economies in the short run. In the long run, they appear to be more stable but currently they are more vulnerable to financial fluctuations. The stability of emerging economies can be increased by improvement in education, open market policies, sound fiscal policies and flexibility.


There is no doubt that the reins of financial control still exists with USA and Europe. But the speed at which the developing countries are leaving their mark on the market, very soon the centre of power would shift in the hands of emerging economies.

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