Developed, developing and emerging economies

Three kinds of economy

• Developed economies have high income per head, a large service (tertiary) sector, high life expectancy and literacy, good infrastructure and stable institutions. Examples: Norway, the UK, Japan.
• Developing economies have low income per head, a large share of employment in agriculture (primary sector), lower life expectancy and literacy, weaker infrastructure and often a large informal economy.
• Emerging economies are moving from developing towards developed: rapid GDP growth, fast industrialisation and urbanisation, a growing middle class, rising FDI and exports, but often wide inequality and gaps in infrastructure. Examples often quoted: China, India, Brazil, Indonesia, Viet Nam, Türkiye.

There is no single official line between the groups. The World Bank classifies countries by GNI per head into low, lower-middle, upper-middle and high income, updated every July (the FY26 classification took effect on 1 July 2025).

The growing economic power of Asia, Africa and other regions

Most world growth now comes from outside the old industrial economies. The IMF (October 2025) projected world growth of 3.2% in 2025 and 3.1% in 2026, with advanced economies growing around 1.5% and emerging market and developing economies just above 4%. Asia is the largest destination for FDI (UNCTAD, 2025), and Southeast Asia's FDI inflows rose 10% to $225 billion in 2024.

For businesses this means the fastest-growing customers, suppliers and competitors are increasingly in Asia and Africa, not only in Europe and North America.

Implications of growth for individuals and businesses

Trade opportunities for businesses: rising incomes create new mass markets for consumer goods (cars, smartphones, branded food, banking); demand grows for capital goods and infrastructure; local firms grow into exporters and partners.

Employment patterns: as economies grow, workers move from agriculture into manufacturing and then services (structural change), from rural areas to cities, and from informal to formal jobs. Wages rise, which raises spending power but also raises costs for firms that located there for cheap labour.

For individuals: higher incomes, more choice and better health and education, but possible downsides such as pollution, congestion, inequality and the decline of traditional jobs.

Worked example

A clothing retailer based in a slow-growing developed economy is choosing between two markets: Country A (GDP growth 1.2% a year, high income) and Country B (GDP growth 6% a year, middle income). Explain one advantage of Country B.

1. Fast growth means incomes, especially of the middle class, are rising quickly.
2. Demand for branded clothing is income elastic, so sales could grow much faster than in Country A.
3. The retailer could build its brand early before rivals arrive.

Answer: Faster-growing incomes mean faster-growing demand, giving more scope to increase sales.

Check yourself

1. Which feature best identifies an emerging economy?
   • The highest GDP per capita in the world
   • Most workers employed in subsistence agriculture with little growth
   • A shrinking manufacturing sector and an ageing population
   • Rapid GDP growth with fast industrialisation and a growing middle class
   Show answer

   Rapid GDP growth with fast industrialisation and a growing middle class. Emerging economies are in transition: growing fast and industrialising.

2. In a developed economy, most people are employed in
   • the primary sector
   • the tertiary (service) sector
   • the secondary sector
   • the informal sector
   Show answer

   the tertiary (service) sector. Developed economies are dominated by services such as finance, retail and health.

3. The IMF (October 2025) projected emerging market and developing economies to grow just above 4% and advanced economies around 1.5%. Using 4.0% and 1.5%, how many percentage points faster is that?
   Show answer

   2.5 percentage points. 4.0 - 1.5 = 2.5 percentage points.

4. Explain how economic growth in a developing country is likely to change its employment patterns.
   Show answer

   As the economy grows, workers move out of agriculture into manufacturing and services, often moving from rural areas to cities and from informal to formal jobs.. Growth brings structural change: labour shifts from the primary sector to secondary and tertiary sectors.

5. A Malaysian bank sees rising incomes across Southeast Asia. Which is the clearest trade opportunity this creates?
   • Lower demand for financial services
   • Cheaper labour costs in its home market
   • More households wanting bank accounts, loans and cards
   • Fewer competitors entering the region
   Show answer

   More households wanting bank accounts, loans and cards. Rising incomes create a new middle class that wants financial services.

6. Explain one way rapid growth in an emerging economy could be a problem for a foreign business that produces there.
   Show answer

   Growth pushes up wages and other costs such as land, so the cost advantage that attracted the business shrinks and its profit margins fall.. Rising wages and costs erode the advantage of producing in an emerging economy.

7. According to UNCTAD's World Investment Report 2025, which region was still the largest recipient of FDI in 2024?
   • Europe
   • Latin America and the Caribbean
   • Asia
   • Africa
   Show answer

   Asia. Asia remained the largest recipient even though its inflows fell 3%; Southeast Asia rose 10% to $225 billion.

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Sources

• Pearson Edexcel International Advanced Level in Business specification (first teaching 2018)
• IMF World Economic Outlook, October 2025: Global economy in flux, prospects remain dim
• UNCTAD: Global foreign direct investment falls for second consecutive year (World Investment Report 2025)
• World Bank Data Blog: World Bank Group country classifications by income level for FY26 (1 July 2025)

Last updated 8 November 2026. Spotted a mistake? Tell us.