Emerging Economies and Industrializing Pathways

An emerging economy is a country moving from low to middle or high income through rapid growth and industrialization, and its industrializing pathway is the particular route it takes, such as export-led manufacturing (South Korea, China), import-substituting industrialization (Latin America in the mid-20th century), resource-based growth (Chile, Gulf states) or services-led growth (India). In brief: the Asian “Tigers” (South Korea, Taiwan, Hong Kong and Singapore) grew rapidly from the 1960s, and China has grown by about 9–10% a year on average since 1978. Groups such as the BRICS (Brazil, Russia, India, China, South Africa) have been used to describe large emerging economies. Risks include the middle-income trap, in which growth stalls before a country reaches high income, and “premature deindustrialization.”

Emerging economies now account for a large share of world output and growth, and their pathways offer lessons for other countries. This guide explains what defines an emerging economy, the main industrialization strategies, the experience of key cases, the main challenges, compares the pathways in a table, works through growth calculations, outlines the history and corrects common mistakes.

What is an emerging economy?

There is no single official definition. Emerging economies are generally countries with low to middle incomes that are growing quickly, industrializing, integrating into global trade and finance, opening their markets and improving institutions. The term “emerging markets” was coined by Antoine van Agtmael of the International Finance Corporation in 1981. Terms include newly industrializing countries (NICs) such as South Korea, Taiwan, Mexico and Malaysia, the BRICS (a name invented by Jim O’Neill of Goldman Sachs in 2001 for Brazil, Russia, India and China, with South Africa added in 2010, and expanded further later), and others such as the MINT (Mexico, Indonesia, Nigeria, Türkiye) and Vietnam. Emerging economies are very diverse in their size, politics and income, but share rapid change, a growing middle class, large domestic markets and, often, large populations.

What industrializing pathways exist?

• Export-led industrialization: producing manufactured goods for world markets, starting with labor-intensive goods such as textiles and moving up to electronics, machinery and cars. South Korea, Taiwan, Singapore and, from 1978, China followed this path, helped by state support, investment in education, high savings and a favorable global market. Special economic zones such as Shenzhen attracted foreign investment.
• Import-substituting industrialization (ISI): protecting local industries with tariffs and quotas to replace imports, used in Latin America, India and parts of Africa from the 1950s to the 1970s. It created industries but often led to inefficiency, small markets, dependence on imported inputs and debt, and many countries moved toward more open policies from the 1980s.
• Resource-based growth: using natural resources (oil, minerals, farm products) as the basis of income, as in the Gulf states, Chile (copper), Indonesia and Brazil (soybeans and iron ore). It can bring wealth, but also commodity price swings and “resource curse” problems such as weak diversification and corruption, unless managed well, as in Norway and Botswana.
• Services-led growth: skipping the manufacturing stage to a large degree, as in India, where information technology services and business process outsourcing grew from the 1990s, and in the Philippines. It can create skilled jobs but may not provide employment for large numbers of low-skilled workers.
• Mixed and state-guided pathways: combining markets with strategic state support, as in China and Vietnam, which used gradual reforms, experimentation and a mix of state and private firms.

What do key cases show?

South Korea had a GDP per person of under 200 US dollars in 1960 and has since become a high-income country, with a gross domestic product per person of more than 30,000 dollars, through a state-led strategy of export promotion, the building of large industrial groups (chaebol), heavy investment in education and technology. China, since the reforms of 1978, has lifted hundreds of millions of people out of poverty, with a growth of about 9–10% a year on average for four decades, and has become the world’s largest manufacturer and trader. India liberalized in 1991 and has grown at 6–7% a year, with a strong services and technology sector but a large informal economy. Brazil and Mexico industrialized with ISI, then liberalized, and have had slower growth since the 1980s. Vietnam and Bangladesh have grown rapidly through garment and electronics exports. Ireland in the 1990s attracted foreign investment in technology and pharmaceuticals.

What are the challenges?

• The middle-income trap: a country grows quickly at low incomes through cheap labor and imitation, but wages rise and it fails to move to innovation and higher productivity, so it is squeezed between low-wage and high-skill competitors. Malaysia, Brazil and South Africa are sometimes cited, while South Korea and Taiwan escaped.
• Premature deindustrialization: as Dani Rodrik (2016) observed, many countries now see manufacturing’s share of employment peak at lower income levels than earlier industrializers, because of automation and global competition, which makes it harder to create large numbers of factory jobs.
• Inequality and urban-rural divides: rapid growth can concentrate gains and leave regions and groups behind.
• Environmental costs: pollution, resource use and rising emissions, with pressure to move to cleaner growth.
• Dependence on external demand and capital flows: exposure to global shocks, such as the 1997 Asian financial crisis, and to changes in trade policy.
• Institutions and governance: corruption, weak rule of law and infrastructure gaps.
• Demographics: a youth bulge can be a dividend or a source of unemployment, and some, such as China, now face rapid aging.

Pathways compared

Worked example: growth, doubling and structure

The values are hypothetical or approximate and illustrate typical calculations.

1. Compound growth: an economy growing at 8% a year multiplies its output by 1.08³⁰ = 10.06 in 30 years, ten times as large. At 4% growth, it multiplies by 1.04³⁰ = 3.24.

2. Doubling time: by the rule of 70, at 8% growth, GDP doubles in about 70 ÷ 8 = 8.75 years. At 3%, it takes about 70 ÷ 3 = 23 years.
3. Per-person growth: GDP grows by 8% and the population by 1.5%. Growth per person is about (1.08 ÷ 1.015) − 1 = 6.4% a year.
4. Catching up: a country with a GDP per person of 4,000 growing at 6% and a rich country with 40,000 growing at 1.5%. The poorer country reaches the same level when 4,000 × 1.06ⁿ = 40,000 × 1.015ⁿ, so (1.06 ÷ 1.015)ⁿ = 10, and n = ln 10 ÷ ln 1.04433 = 2.303 ÷ 0.04338 = about 53 years.
5. Structural change: in a country, agriculture falls from 50% to 15% of employment, industry rises from 20% to 32% and services from 30% to 53%, in 30 years. The shares still total 100% (15 + 32 + 53 = 100). The shift out of agriculture is 35 percentage points.
6. Savings and investment: a country investing 40% of GDP of 600 billion invests 240 billion a year. If domestic savings are 36% (216 billion), the gap of 24 billion is financed from abroad, which is 4% of GDP, a current account deficit.

How did the idea of emerging economies develop?

The post-war economies of Japan and Germany grew rapidly, and Japan’s rise inspired the “flying geese” model of regional development. The East Asian Tigers took off in the 1960s and 1970s, and the World Bank’s 1993 report “The East Asian Miracle” analyzed their success. China’s reforms from 1978 and India’s liberalization in 1991 brought two giant populations into the global economy, and by the early 2000s, the BRICS grouping became a symbol of the shift in economic weight. The 2008 financial crisis hit rich countries harder, and emerging economies were seen as the engines of recovery for some years, although growth slowed in the 2010s and many faced problems of debt and capital outflows in the 2020s. Today, the question is how latecomers can develop in an era of automation, digital services, climate constraints and geopolitical tension.

Which mistakes are common?

Mistake 1: Treating emerging economies as one group

They differ greatly in size, structure, income and politics. The label covers very different cases.

Mistake 2: Assuming that rapid growth continues automatically

Growth often slows as countries get richer, and many have been caught in the middle-income trap, so sustained growth requires upgrading productivity and institutions.

Mistake 3: Copying the East Asian model without its context

Those countries benefited from specific conditions: high savings, strong education, export markets and effective states. Other countries face a different global environment.

Mistake 4: Equating industrialization with only factories

Services, agriculture and technology are also paths, and the type of jobs created and the share of people who benefit matter as much as output.