Emerging Market Economies: Definition and List of Countries

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An emerging market is an economy moving from low income and limited global ties toward developed-market status: faster GDP growth, rising trade and foreign investment, a shift from farming and raw materials toward industry, and financial institutions that are still maturing. There is no single official list. The 106 economies ranked here are the World Bank’s middle-income countries (upper middle and lower middle income), ordered by GDP per capita. That is a broad, income-based definition. It is wider than the emerging market lists used by the IMF or by stock index providers, which are the definitions that matter if you are buying an emerging markets fund.

How This Ranking Is Built

Two separate measures shape the list, and keeping them apart explains most of what looks odd in it.

Who is included is decided by the World Bank income classification, which is based on GNI per capita calculated with the Atlas method. Gross national income adds income residents earn from abroad and subtracts income sent out to foreign owners. The Atlas method converts local currency to dollars using a smoothed exchange rate (a three-year average adjusted for inflation differences), so a sudden devaluation does not instantly change a country’s group. The World Bank updates these groups each year at the start of its fiscal year on July 1. Low-income and high-income economies are excluded, which leaves 59 upper-middle-income and 47 lower-middle-income economies.

The order comes from GDP per capita, which measures output produced inside the country divided by population, converted at market exchange rates. Turkiye leads at $18,599 and Lesotho is last at $1,089. On this measure, the top entry produces roughly 17 times more per person than the bottom one.

Because the two measures differ, income group and rank do not line up neatly:

• Bolivia (54th) is lower middle income, yet it ranks above Viet Nam, Indonesia and Sri Lanka, which are upper middle income.
• Iran (69th), the Philippines (64th) and Micronesia (63rd) are upper middle income but sit among lower-middle-income countries in the GDP ordering.

These are not errors. GNI and GDP can diverge because of remittances, profits paid to foreign investors or exchange-rate swings that the Atlas method smooths out and market-rate GDP does not.

How to Read the List

Rank here measures output per person, not the size or investability of an economy. A few practical points follow from that.

Small economies can rank high. St. Lucia, Montenegro and the Maldives all sit in the top seven, and each has a population under one million. China, ranked ninth, has 1.41 billion people. A high position says something about average income levels, not about market size or the depth of a stock exchange. For total economic weight, see the largest economies in the world by GDP.

Large emerging economies are spread throughout. Of the four BRICS members on the list, China is 9th, Brazil 17th, South Africa 42nd and India 83rd. India’s low position reflects its large population, not a small economy. Russia, the R in BRICS, does not appear in this list.

Regions cluster differently. Europe & Central Asia and Latin America & Caribbean account for much of the top 25. Sub-Saharan Africa has entries near the top (Mauritius 12th, Gabon 28th, Botswana 33rd) but makes up 13 of the bottom 20.

Income group matters for policy. The World Bank and other lenders use these groups to set lending terms and eligibility for concessional financing. For an investor, the group is a rough marker of development stage. For a development economist, it determines which programs a country can access.

What Is an Emerging Market Economy?

The term describes a country in transition. Emerging economies (sometimes shortened to EMEs) share a few traits:

• Rapid growth: GDP, trade volume and per capita income rise faster than in mature economies.
• Industrialization: output shifts from agriculture and resource extraction toward manufacturing and services.
• Global integration: foreign direct investment flows in, exports grow, and local companies start selling abroad.
• Developing financial systems: the country has banks, a stock exchange and its own currency, but debt and equity markets are less liquid and less regulated than in the U.S., Western Europe or Japan.
• Institutional reform: governments adopt rules and standards modeled on developed countries, such as investor protections, central bank independence and accounting standards.

“Emerging” does mean growing, but it describes a direction rather than a growth rate. An emerging economy can contract for years during a currency or debt crisis and still be classed as emerging.

Emerging, Developing and Frontier Markets

These labels overlap but are not interchangeable.

Developing is the widest category. It covers every economy that has not reached high-income or developed status, from the poorest countries to those close to the threshold. Our list of developed vs. developing countries shows that split.

Emerging usually refers to the more advanced part of the developing world: economies large and open enough to attract foreign capital, with functioning financial markets. Every emerging market is developing, but not every developing country is emerging.

Frontier markets sit below emerging markets. They tend to be smaller, with lower per capita income, less industrialization and thinner stock markets. Investors treat them as riskier than emerging markets, and an index provider may promote a frontier market to emerging status once its market becomes large and accessible enough.

Older terms such as “Third World” come from Cold War politics rather than economics and do not match income-based groupings.

How Other Organizations Classify Emerging Markets

Ask a different institution and you get a different list. The criteria usually combine income level, the quality and openness of financial markets, and growth, but each body weighs them its own way.

• International Monetary Fund: its World Economic Outlook groups countries into advanced economies and emerging market and developing economies. Within that, the IMF has identified 20 countries as emerging market economies based on factors such as market access, income and global economic weight.
• MSCI: classifies 24 countries as emerging markets for its MSCI Emerging Markets Index, based on economic development, the size and liquidity of the stock market, and how easily foreign investors can get money in and out.
• FTSE Russell, S&P Dow Jones Indices: run their own country classification reviews, and their emerging lists differ slightly from MSCI’s.

The differences have real consequences for funds. South Korea, for example, is classified as emerging by MSCI and as developed by FTSE Russell. Two emerging markets funds tracking different benchmarks can therefore hold noticeably different countries, and an investor who owns both a developed-markets fund and an emerging-markets fund from different index families can end up double-counting or missing a market.

Index-based lists also include economies the World Bank rates high income. Taiwan, like South Korea, appears in major emerging markets indexes because of market access rules. Their income levels exceed the middle-income range, so they are excluded from this ranking, as are low-income economies.

Status can also change in either direction. A country can be promoted from frontier to emerging or from emerging to developed, and a developed market can be demoted. Greece is the best-known case: MSCI moved it from developed to emerging status in 2013 after its debt crisis. Index providers announce such changes in advance, and funds that track the index must then buy or sell that country’s stocks.

Risks for Investors

Emerging markets attract investors because faster GDP growth can translate into faster earnings growth for local companies. Higher potential returns come with higher risk:

• Political instability: elections, coups or policy reversals can change tax rules, nationalize industries or restrict capital flows.
• Currency volatility: a U.S. investor’s return depends on both the local asset price and the exchange rate. A 20% gain in a local stock is erased if the local currency falls 20% against the dollar.
• Liquidity: local exchanges can be thin, and many of the largest companies may be state-run or privately held, which leaves fewer listed shares for outside investors.
• Information quality: accounting standards, disclosure rules and enforcement may be weaker than in developed markets, and economic statistics can be less reliable.
• Infrastructure and capital controls: settlement systems, custody arrangements and limits on moving money out of the country add costs and delays.

Frontier markets carry all of these risks, usually in stronger form.

Whether emerging markets suit a portfolio depends on time horizon, tolerance for volatility and how much exposure an investor already has. Many large U.S. companies, including those in the S&P 500, earn a share of their revenue in emerging economies, so some exposure may already exist indirectly. Most individual investors reach these markets through broad index funds rather than individual foreign stocks, which makes the fund’s benchmark, and its country list, the classification that actually determines what they own.

FAQs

The Bottom Line

For investors, the World Bank income list is only a rough guide to development stage, since emerging markets funds follow index provider classifications that include different countries. Anyone buying exposure should check the fund's benchmark and country list, weigh currency, political and liquidity risks, and account for exposure already held through large U.S. companies that earn revenue in emerging economies.