The growing importance of emerging markets

In 2017, the U.S. was by far the biggest economy, followed by China, Japan, and Germany. The ten countries on the chart were the ten biggest economies and produced more than the half of the world output. The U.S. alone produced 25 percent of the world output, while China and Japan produced 15 and 7 percent of the world output respectively.

The next chart shows the 1990 GDP of the same countries. Notice the sharp increase from 1990 to 2017 in the sizes of the emerging markets. The Brazilian, the Chinese, and the Indian economies used to be the smallest of the ten. By 2017, China's economy had become the second largest, behind only the U.S. economy. The Indian economy is already bigger than the Canadian, Italian and French economies. The Brazilian economy surpassed those of Canada and Italy. Clearly, the global economy is reballancing with more weight toward the emerging markets.
The share of the world GDP produced in emerging markets is expected to grow even more over time. These countries have market-based economies and large populations that are educated and eager to reach middle-class income status similar to the one enjoyed in the advanced countries.

The biggest obstacle to achieving that goal is their weakness in terms of the rule of law. It is impossible to reach the income levels of developed countries if the legal and political systems do not function well. It remains to be seen if those will be improved as the emerging markets continue to grow.

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