Emerging and Frontier Markets

  • Published on
    12-Apr-2017

  • View
    76

  • Download
    1

Transcript

Emerging and Frontier Markets BEFM013: Investment Instruments Dr. Rohit Sonika Business School University of Exeter 17th October 2015 E. Ang 000347 J. Xiao 017209 Y. Abbas 002415 Z. Liu 012946 Page 2 of 46 Abstract In this essay, we will provide an overview of three different kinds of economies: Developed Emerging, and Frontier Markets. We will then look at a small selection of each kind of economy, state their basic characteristics, and offer a breakdown of each countrys economic sectors. Finally, we will compare and contrast the markets, to illustrate the differences between each type of economy. Kindly note, that we have included the three economies of developed countries to set a benchmark to be compared to the emerging and frontier markets. Page 3 of 46 Table of Contents 1. Introduction ............................................................................................................................................... 5 2. Emerging Markets.......................................................................................................................................... 6 2.1 Why Emerging Markets are Appealing to Investors ................................................................................ 7 2.2 Risk in Emerging Market .......................................................................................................................... 8 2.2.1 Political and Sovereign Risk .............................................................................................................. 8 2.2.2 Volatility ............................................................................................................................................ 8 2.2.3 Liquidity ............................................................................................................................................ 9 2.3 China ........................................................................................................................................................ 9 2.3.1 Business Culture and Issues ............................................................................................................ 10 2.3.2 Market Sectors ............................................................................................................................... 11 2.3.3 Trade Balance ................................................................................................................................. 11 2.4 Turkey .................................................................................................................................................... 12 2.4.1 Business Culture ............................................................................................................................. 12 2.4.2 Market Sectors ............................................................................................................................... 13 2.4.3 Trade Balance ................................................................................................................................. 13 3. Frontier Markets .......................................................................................................................................... 14 3.1 Why Frontier Markets Show Appeal ..................................................................................................... 15 3.2 Risk Analysis for Frontier Markets ......................................................................................................... 16 3.2.1 Political and Sovereign Risks........................................................................................................... 16 3.2.2 Volatility .......................................................................................................................................... 16 3.2.3 Liquidity .......................................................................................................................................... 17 3.2.4 Corruption ...................................................................................................................................... 18 3.3 Nigeria ................................................................................................................................................... 18 3.3.1 Market sector ................................................................................................................................. 19 3.3.2 Business culture .............................................................................................................................. 19 3.3.3 Investment Characteristics ............................................................................................................. 19 3.4 Saudi Arabia ........................................................................................................................................... 20 3.4.1 Business Culture ............................................................................................................................. 21 3.4.2 Market Sector ................................................................................................................................. 21 3.4.3 Investment Characteristics ............................................................................................................. 21 3.5 Croatia ................................................................................................................................................... 23 3.5.1 Business Culture ............................................................................................................................. 23 3.5.2 Market Sectors ............................................................................................................................... 23 Page 4 of 46 3.5.3 Investment Characteristics ............................................................................................................. 24 3.6 Concluding Frontier Markets ................................................................................................................. 25 4. Developed Economies ................................................................................................................................. 25 4.1 Norway .................................................................................................................................................. 25 4.1.1 Business Culture ............................................................................................................................. 26 4.1.2 Market Sectors ............................................................................................................................... 26 4.1.3 Investment Characteristics ............................................................................................................. 26 4.2 The United States of America ................................................................................................................ 27 4.2.1 Business Culture ............................................................................................................................. 28 4.2.2 Growth Engines: Research, Development, and Entrepreneurship................................................. 29 4.2.3 Components of the Economy ......................................................................................................... 29 4.2.4 Investment Characteristics ............................................................................................................. 29 4.2.5 Capital Flows ................................................................................................................................... 31 4.3 Japan ...................................................................................................................................................... 31 4.3.1 Market Sectors ............................................................................................................................... 32 4.3.2 Investment Characteristics ............................................................................................................. 33 5. Compare and Contrast................................................................................................................................. 35 6. Conclusion ................................................................................................................................................... 38 References ....................................................................................................................................................... 40 Page 5 of 46 1. Introduction The global economy has classified its markets into two main categories: developed markets, and emerging markets. Before the term emerging markets was coined, these countries were referred to as Less Economically Developed Countries LEDC. The term LEDC did not have a positive connotation, and it neglected to describe the potential of these markets, and thus, by the 1970s, the name was changed to Emerging Markets (NASDAQ). Those two market classifications Developed and Emerging have been put in place based on certain economic characteristics each individual country enjoys. For example, developed markets are characterized by their high credit worthiness, their regulatory authorities active role, free and developed trade markets, and transparency of market information and trade reporting process, to name a few factors (FTSE, n.d.). The remaining markets were labelled as emerging markets. With this formation many economies that enjoyed different qualities, some more advanced than others, were pooled under the same category. In the 1990s, a member of the International Finance Corporation, Mrs. Farida Khambata, came up with the term Frontier Market (NASDAQ, n.d.), which would separate emerging markets into two categories, emerging and frontier markets. The classification of these countries was based on their market structure and potential. Now, emerging markets are known for their established financial infrastructures, and are constantly progressing towards becoming developed economies (Investopedia). Markets that are classified as emerging share the following characteristics: They have established regulatory bodies and market exchanges, and liquidity in both debt and equity markets (Investopedia). Emerging markets are also considered an indicator of the worlds economic growth, because they hold around 80% of the worlds population (Investopedia). Markets like Brazil, Russia, India and China, also known as the BRIC nations, are great examples, used to illustrate the potential and power some emerging markets have. The BRIC countries are documented to have some of the fastest-growing economies in the world, while also being home to around 3 billion people, almost half of the worlds population (Economy Watch). A Goldman Sachs study believed that by 2041, but later altered to 2032, the BRIC nations will continue growing to the point where not only will they become developed economies, they will also overtake the current market leaders (Financial Times). Frontier markets, on the other hand, are characterized as countries with poor liquidity, unstable currencies, almost non-existent stock market, and inadequate regulations (Investopedia). Another distinction of frontier countries is that their economies are not as dynamic as the developed and emerging markets. Frontier markets are usually dependent on oil or other single commodities Page 6 of 46 (Interactive Investor). Although the qualities of frontier markets may not seem as attractive as developed and emerging markets, their constant growth along with their high potential may make them attractive to passive investors. For example, countries such as Bangladesh and Nigeria have an outstanding index growth by the second half of 2014 of around 34.2% and 32.5% respectively (Interactive Investor). The high gains, accompanied by a relatively young population with the ability and potential to grow, will cause some investors to see frontier markets as potentially lucrative markets for investment. So, with the constant development in our global markets, investors must understand the differences between the three main economic markets (developed, emerging and frontier); they must also have the ability to analyse the key aspects and differences of developed markets (such as Norway, USA and Japan), emerging markets (such as China and Turkey), and frontier markets (such as Nigeria, Saudi Arabia, and Croatia). 2. Emerging Markets In general emerging markets are markets that are less mature than the developed markets. One common characteristic of emerging markets is market freedom. Commonly, emerging markets have high levels of government intervention and control along with low information transparency and high insider trading. Developed markets on the other hand, are controlled by market forces, such as supply and demand, enjoy high levels of transparency and flow of information and have strict laws prohibiting insider trading. Emerging markets are classified based on some common characteristics such as, lower than average per-capita income, rapid growth rates (since their economies are not well established, sometimes minor implementations may be reflected in substantial growth), and high sensitivity to volatile currency and commodity prices to name a few (About). One thing to keep in mind is that not all emerging markets share the same characteristics and they may also very in terms of global economic influence. For example, in 2002 a Chief Economist at Goldman Sachs, named Jim ONeill, picked the four top performing emerging countries, which were Brazil, Russia, India and China, and named them the BRIC nations. These four countries were chosen based on their high GDPs, rapid growth rates, global economic power and potential to become developed markets in the upcoming years (FT). It is also worth noting that by the end of 2010 South Africa joined the top four nations and was later called BRICS. Page 7 of 46 The rapid growth of emerging markets can be summarized in the chart below (Figure 1). Figure 1 2.1 Why Emerging Markets are Appealing to Investors The general concept of higher risk higher return is perfectly displayed when comparing developed markets with emerging markets. The Cumulative Index performance graph of the gross returns of the both the developed and emerging market indices below shows a perfect example of why investors would prefer to invest in emerging markets. Emerging markets have been out performing the developed markets since 2001. In 2015 market returns in emerging markets where 65.2% higher than returns in the developed markets. *Note: that the MSCI World index is composed of 23 developed countries/markets Figure 2 Page 8 of 46 2.2 Risk in Emerging Market 2.2.1 Political and Sovereign Risk Ranging from viruses to wars to revolutions, this issues that are closely related to emerging markets make it difficult for investors to efficiently calculate and quantify political and sovereign risks. The table on the right is a brief analysis done by Eurasia Group that illustrates how difficult it is to quantify the political risk and forecast a country's returns. *Note: The markets in the table are listed based on their projected political stability. Figure 3 2.2.2 Volatility A four year study of developed and emerging markets was conducted by an American financial services holding company called State Street. The study shows that on average emerging markets were around 3% more volatile than developed markets. This is demonstrated in the histograms below (figure 4): Figure 4 Page 9 of 46 2.2.3 Liquidity As we now know, the emerging markets may seem appealing to passive investors, who do not mind risk, due to their comparatively high returns, relative to developed markets. We also realized that these high returns also come at a price of higher risk as the majority of emerging markets face political risks and have a higher volatility rate. These risks are manageable if these markets were liquid, investors may cut their losses and get out of that investment, but what if the market is illiquid? Emerging markets are not as established as developed markets and sudden changes in interest rates may cause severe liquidity problems. A recent IMF report suggested that if the Federal Reserve Bank were to increase interest rates that would decrease lending and cash flow, which in return will decrease the levels of demand and slow down financial activities within the economy (International Business Times). Developed markets have established monetary policies and an efficient market to deal with higher interest rates. The emerging markets on the other hand will suffer from the lack of liquidity, and investors will not be able to cash out. 2.3 China Chinas economic policies have been undergoing reforms since 1978. These reforms have slowly transferred some of the economic power from the hands of the government and into the hands of the market which is the leading cause of Chinas economic leap. The Chinese Economic Authority is still in the process of amending their policies as new issues continue to arise. One of the main issues that China is looking into is allowing the market to have the final say in allocating their resources which would help improve economic output (Focuseconomics). These changes will give the market the freedom of choice along with minimizing government intervention. To add to that, Chinas General Secretary Mr. Xi Jinping, has launched a campaign to crack down on any governmental corruption that might hinder the free flow of the economy, having said that, this campaign was aimed at the Communist Partys senior officials (Focuseconomics). Moving on to Chinas Fiscal policy, during 1994 China was facing difficulties with their continuous decline in tax-to-GDP ratio which was around 10.8% of GDP (focuseconomics). In order to tackle this decline China has introduced a new taxation policy that saw a gradual incline in the tax-to-GDP ratio to about 22.7% in 2013 (focuseconomics). This new tax scheme is part of Chinas economic reform which has decreased the ownership and power of the government in the economy. Also, the tax-scheme has limited the governments revenue which forced them to resort to land sale and shadow banking (focuseconomics). This solution may seem like the government is talking on high Page 10 of 46 levels of debt, but it is also worth noting that high majority of Chinas debt is owned locally and in local currency. 2.3.1 Business Culture and Issues During the 1970s China was known for their closed economy that was centrally planned (CIA). No imports and no exports, China considered itself to be self-sufficient and kept its doors closed to external economies. The centrally planned economy was an economy that was fully controlled by the government with high government interventions. In 1978, China opened its doors to the world economies and started to implement market reforms in an attempt to switch from a closed market economy to a more market based one (World Bank). In a market based economy, the market factors are driven fully by forces of supply and demand. Having said that, China is not 100% a market based economy as it is still considered a communist country, but the government has limited its interventions to crucial moments that will help maintain a healthy economy. Now, after 2010, China has become the worlds biggest and leading exporter with a population of around 1.3 billion and a GDP of around $17.62 trillion (CIA). So, if China is the leading exporter and enjoys a strong economy with a GDP that is higher than most developed markets, then why is it still considered an emerging market? China is still undergoing economic changes. Their economic reforms have not yet been complete as they still face emerging market issues that developed markets do not face. For example, China has the 2nd largest population living under the poverty line (India has the largest). Another issue that is facing Chinas economy is their wealth to population ratio. Comparing China to neighboring country Japan, a developed market, China has a GDP of $17.62 trillion which is around four times as much as Japans GDP $4.75 trillion; but, when comparing their GDP Per Capita China falls short (CIA). Chinas GDP Per Capita is around $12,900 while Japans GDP Per Capita is around $37,400 (CIA). Other emerging market issues that China is currently facing are the rapidly widening income inequality and its high urbanization rates (World Bank). The shift in their economic procedures and their quick adaptation to market reforms have bought huge inflows into the country and significantly improved their exports, but a small percent benefited from that change. This left China in the aphorism the rich get richer while the poor get poorer. With this in mind, China is a huge country with the major inflow of the wealth is towards the urban cities and with a population of 1.3 billion, China is left with an urbanization problem. Page 11 of 46 2.3.2 Market Sectors China is the second largest economy in the world, and it is divided into three main sectors: Agriculture which is around 9.2% of Chinas total GDP, the industrial sector, with 42.6%, and the service sector, with 48.2% (CIA). With around two thirds of Chinas population living and working in rural areas, the agriculture sector is considered one of the biggest sectors in the world. China is the world leader in the agriculture sector, where both production and farmer income have been increasing on an annual basis. The grain production has increased over the year by around 4.5%, while other major agricultural products such as cotton, sugar and fruits have all increased by 10.7%, 4.3% and 4% respectively (Agri). With the continuous expansion in production came an increase in income. The hard work that the farmers in the rural have put in to develop this sector did not go unrecognized, as they have also witnessed their fair share of the prosperous economy. The farmer's annual income has increased for the eighth consecutive year, with an 11.4% increase for the previous year (Agri). This talk about the expansion of the agriculture industry and increase in farmer income is not as rosy as it might sound. China is still struggling to produce enough agricultural products to meet it growing demand. Some of the issues that the sector is currently facing is that most of the farming equipment is outdated which is causing food and water pollution (Reuters). The government needs to find extra funds to help farmers upgrade their equipments and improve with harvests. In an attempt to aid the farmers China has asked to banks to increase and speed up their lending, and in return the Central Bank of China will free-up some of the commercial banks reserves (Reuters). 2.3.3 Trade Balance Chinas total exports for 2014 is around $2.3 trillion (CIA), where its main exports are broadcasting equipment, telephones and computers, office machine parts and integrated circuits to Germany, United States, Japan and South East Asia (OEC). Its imports on the other hand reaches around $1.96 trillion in 2014 (CIA), and it imports gold, petroleum, iron, cars and integrated circuits from the United States, Australia, Japan and South East Asia (OEC). This shows Chinas trade surplus represented by a positive trade balance of around $340 billion respectively, which is illustrated in the graph below: Page 12 of 46 Chinas Trade Balance Source: http://atlas.media.mit.edu/en/profile/country/chn/#Trade_Balance Figure 5 Figure 6 2.4 Turkey Briefly, Turkey had a GDP of $1.5 trillion in 2014 (CIA), it is a member state of the World Bank Group, and it ranks as 17th largest economy in the world (World Bank). In 2001 Turkey went through a financial crisis where it sought aid from the International Monetary Fund (CIA). From 2002 to 2012 the Turkish economy picked up, where extreme poverty levels dropped from 13% to 4.5%, and access to basic quality education, health and municipal services improved drastically for the average citizen (World Bank). 2.4.1 Business Culture Turkeys economy used to be one of the mid-average economies that witnessed many government interventions. It was a country that was heavily dependent on two main sectors: Textiles and clothing (CIA). Now, Turkey counts as one of the largest free market economies, with a booming http://atlas.media.mit.edu/en/profile/country/chn/#Trade_BalancePage 13 of 46 industrial and service sector. Furthermore, Its move toward privatization and a decrease in government interventions have encouraged a new generation of middle-class entrepreneurs (CIA). 2.4.2 Market Sectors Turkeys economy is mainly made up of three main sectors: Agriculture 8.2% which employs around 25% of Turkeys population, the industrial sector, with 26.9%, and the service sector, with 64.9%. 2.4.3 Trade Balance Turkeys total exports for 2014 is around $176.6 billion (CIA), when it mainly exported cars and vehicle parts, refined petroleum, iron and delivery trucks to Europe and Iraq respectively (OEC). Its imports on the other hand reaches around $240.4 billion (CIA), and it imports gold, refined petroleum, iron, cars and gas from Europe, China and the United States (OEC). This leaves Turkey with a negative trade balance of around $63.8 billion respectively, which is illustrated in the graph below: Turkeys Trade Balance Source: http://atlas.media.mit.edu/en/profile/country/tur/#Trade_Balance Figure 7 Figure 8 http://atlas.media.mit.edu/en/profile/country/tur/#Trade_BalancePage 14 of 46 3. Frontier Markets In essence, many frontier nations are the emerging markets of tomorrow. A frontier market is, by nature, less liquid than an emerging market and its market capitalisation is lower. Investors are interested in frontier markets because they tend to grow very rapidly within the coming years, offering high returns with low correlation to other markets. They are expected to become more liquid and share more characteristics with emerging markets. Below are the 24 countries that constitute the frontier market (Figure 9). In terms of the shares of the global equity market, frontier markets only take up less than 1% of the whole equity market, contributing very little, according to S&P, MSCI and FTSE (Figure 10). Figure 9 Figure 10 Page 15 of 46 3.1 Why Frontier Markets Show Appeal From figure 11 we see that the MSCI Frontier Markets Index had risen by 20% between the end of 2012 and March 31, 2015, whereas the MSCI Emerging Markets Index had seen an approximately 10% decline over the same period. Figure 11 Figure 12 illustrates the price-earnings ratios over the four areas with only 7.23 units difference between United States and countries classified as frontier markets. The small difference is mainly due to the price investors collectively pay for earnings growth and economic expansion. Figure 12 Page 16 of 46 3.2 Risk Analysis for Frontier Markets 3.2.1 Political and Sovereign Risks Frontier market stocks are often dominated by companies that are driven more by the local economy than by global macro trends. (Nathan J. Rowader, Senior Portfolio Manager, fwd thinking viewpoint). For example, African frontier economies are prone to being driven by the oil, agricultural, telecommunications and consumer goods sectors. Therefore, frontier countries that experience drastic economic turbulence may not cause significant backlash to other countries, even if they are geographically adjacent. We show this in more detail by using statistics. Between January 1, 2009, and December 31, 2013, the average intercountry correlation among MSCI Frontier Markets Index nations was 0.36, as compared with 0.63 for countries in the MSCI Emerging Markets Index. Take Nigeria as an example, where people are constantly under threat of terrorism. In the past three years, terrorist attacks in Nigeria have doubled. What makes Nigerias economy worse is that elections and power struggles across the country can and will always plague the domestic market, destabilising markets. 3.2.2 Volatility Frontier markets are very volatile. Financial Times reported that, in 2014, the range of returns within the asset classes was enormous, with Nigeria down 26 per cent in US dollar terms and Bangladesh soaring over 50 per cent. Therefore, investors that require short-term reward would not be willing to invest in such markets, because frontier markets are too risky to earn profits. However, as a group, frontier markets are less volatile than the MSCI emerging market index, with frontier markets averaging 63.9% volatility than emerging markets over the past twelve years. Figure 23 clearly verifies this statement. This is because economies of frontier countries are relatively uncorrelated with each other. The strategy for investors is that they must seek chances to diversify their portfolio as much as possible by investing in a number of different markets. Diversification is the key to frontier investing, but can be a formidable task. Page 17 of 46 Figure 13 3.2.3 Liquidity Figure 14 looks at the percentage of market capitalisation traded relative to GDP. The more financially free, the larger the percentage of market capitalisation traded relative to GDP. Indeed, investors would only be interested in markets that have high degrees of market freedom, and would only favour more financially advanced markets. The size of the economies of frontier markets only comprises a minor percentage of the ones of developed countries, with of GDP-to-GDP ratio of less than 5%. Figure 15 measures the turnover ratio for equities in various markets. In general, the higher the ratio is the more liquid the market. The figure shows that the ratio has decreased significantly from 2000 to 2010, and stood at all times lower than that of emerging markets, with approximately half of the turnover of emerging markets. We can also see that developed markets faced an all-time high turnover ratio. The pessimistic metric for frontier markets would drive investors to shun them. Furthermore, fund managers find it hard to build a position in frontier markets and hard to exit them, because both actions take lengthy amounts of time. This situation set a big challenge for investors, since only stocks whose return potential exceeds the expected cost of both the buy and the sell should be considered. Page 18 of 46 Market cap traded as percentage of GDP Figure 14 Turnover ratio for equities as percentage of average market cap Figure 15 3.2.4 Corruption Common is the news that frontier markets are corrupt. From the statistics offered by the Financial Times, the average score on Transparency Internationals corruption ranking for frontier markets is 4.2, versus 4.7 for emerging markets (and 7.6 for developed markets). This is not good news for investors. 3.3 Nigeria Nigerias Gross Domestic Product (GDP) was worth 568.51 billion US dollars in 2014, taking over the number one place of South Africa, becoming the largest economy in Africa. It is reported that Nigerias economy is growing at an average rate of 7% per year over the last decade (The Economist, 2014). Nigeria has been experiencing rapid population growth, with 57 million more people in 2008 than in 1990, a 60% growth rate. (IEA, 2008) Page 19 of 46 About half of its population is 14 years old or younger. It is also the most populous country in Africa (Radio Free Europe Radio Liberty, 2014). Nigerias agricultural sector has not kept pace with the population growth; however, as once being a net exporter of food, it has now become a new importer. Its main trading partners are (in order of trade volume): India, Spain, the Netherlands, South Africa, and Brazil. (National Bureau of Statistics. 2015). 3.3.1 Market sector Endowed with an abundance of natural resources, Nigerias economy can be classified into oil and non-oil sectors, with the oil sector comprised 10.45% of total real GDP in 2015. The non-oil sector grew by 5.59% in real terms in Q1 of 2015 (figure 16). Mining and Quarrying, and Agriculture are also two large sectors that contribute much to Nigerias GDP. However, Nigerias economy is well-diversified, in spite of the attention paid to its oil revenues in mainstream media. Source: www.nigerianstat.gov.ng/pages/download/281 Figure 16 3.3.2 Business culture Business culture in Nigeria is presented in a strictly hierarchical style. Managers tend to give orders and make decisions. Most middle-ranking and senior managers in Nigeria are men and female managers in Nigeria tend not to be treated respectfully even if the male employees are junior to them. Therefore, female positions in business are still a problem in Nigeria. (World Business Culture, n.d.) 3.3.3 Investment Characteristics "Nigeria offers far too many opportunities to be ignored and despite all this noise, right now is the time to invest", Anna Rosenberg, associate practice leader for Sub Saharan Africa at Frontier Page 20 of 46 Strategy Group told CNBC. Due to political instability, potential threat of terrorist attacks, especially by extremist groups such as Boko Haram, and crushing poverty, investors have a negative view of Nigeria. Despite the tough economic environment this year, medium- to long-term economic prospects for the country remain positive, a Frontier Strategy Group report published in March said. Thanks to its large population, the consumer goods and service sectors, especially banking, will seem profitable to potential investors. (Tidey, 2014) Figure 17 3.4 Saudi Arabia The Kingdom of Saudi Arabia, with Islam as its the principle religion, is located in southwest Asia and bordered by Iraq, Qatar, and the Red Sea. The military expenditure is particularly noticeable in that it takes up more than 10% of GDP, and stands as the fourth largest in the world. (SIPRI, 2014) Backed by its oil reserves, Saudi Arabia enjoys a GDP growth rate of 2.7% in 2013 (Norway is 0.2%). It also has a high Human Development Index (HDI) and low unemployment rate of 5.7% in 2014. (Trading Economics, 2015). Why is it still developing? There are a few reasons. Firstly, they have low standards of education. It was reported that Saudi youth generally lack the education and technical skills the private sector needs, with the illiteracy rate standing at 13.7%, with only 85% of adults being literate. Another issue, which is related to the one above, is youth unemployment, which stood at 12% in 2013. With almost half of its population under 25 years of age, this creates a problem regarding increased social unrest. Page 21 of 46 Saudi Arabia has an unsustainable health care model, with 76% of its caregivers and physicians being expatriate workers. A related issue is the obesity epidemic currently running rampant in the Gulf, with 35.2% of Saudis becoming obese. (Whitman, 2015) Moreover, Saudi Arabia also has a lack of renewable water resources, and currently faces security threats from multiple extremist groups both internally, and around the region. (Howells, n.d.) 3.4.1 Business Culture Saudi Arabia is a country governed under absolute monarchy, and having Islam as its biggest religion, with virtually all its citizens being adherents, it is essential to take social and business culture into consideration, such as scheduled praying times and the discrimination towards females. Additionally, Saudi Arabia ranked 12th in Ease of Doing Business Index by the World Bank, and it aims to build a more open and friendly business economy. Establishing trust and respect is essential, but the concept of time is less precise or important. (Hierarchy Structure, n.d.) 3.4.2 Market Sector Due to its unique geographical location, Saudi Arabia possesses rich natural resources. The Kingdom is the largest oil producing and exporting country in the world, and the oil industry accounts for 45% of GDP and two-thirds of government revenue. (Eia Beta, n.d.) Saudi Arabia plays a leading role among the member of Organization of Petroleum Exporting Countries(OPEC) to ensure the stability of the oil price.(Saudi Embassy, 2015) Apart from oil, the government also pays attention to diversifying its economy, focusing on other sectors such as its mineral industry, and agriculture. The government also encourages private businesses to create more positions to deal with the problem of unemployment. 3.4.3 Investment Characteristics Saudi Arabia joined the World Trade Organisations in 2005 with aims of encouraging foreign investment. Economic freedoms have increased by increasing the trade freedoms. However, labour freedoms have decreased and some social problem is still present in the country. For example: youth unemployment, competitive imbalance between nationals and foreign workers in private sectors and discrimination to female participation in business. (Heritage, n.d.) Page 22 of 46 Figure 18 The Capital Market Authority (CMA) announced that more open markets in Saudi Arabia will be provided for qualified foreign investors who would like to invest in the Saudi stock market. (Ghias, 2015) According to Foreign Direct Investment figures (Santander, 2015), Saudi Arabia enjoys plenty of advantages in investment aspects, such as expanding its national infrastructure, increasing working opportunities for younger generations, and a diversified economic environment, with growth in the technological and banking sectors. Saudi Arabia maintained a stable outlook of its credit rating in Moodys estimation. This is due to the governments continuing financial strength in recent years. The level of government debt showed only 1.6% of the GDP at the end of 2014, and the deficit is about 0.4% of GDP in the same year. This led to a buffer zone, increasing room for domestic debt (Moodys, 2015). However, if the oil price remains low for longer periods, it will have negative impact on Saudi Arabias credit profile. The most recent news from Attwood (2015), shows that given its strong dependence on oil income, Saudi Arabias fiscal position is weakened due to the declining oil prices, resulting in a budget deficit in 2015 of up to 20% of Saudi Arabias GDP. The government plans to stop contracting new projects and freezing appointments and promotions in the public sector, thus decreasing its economic and fiscal strength, but increasing operational systemic risk. Page 23 of 46 Figure 19 3.5 Croatia The Republic of Croatia is categorized as a frontier market in the European area. Before the of 2008 global financial crisis, the GDP growth rate was 4-5% annually but now, after Croatia being under recession for six years, its economic competitiveness has lagged behind peers in the EU. GDP today was estimated by World Bank at $57.2 billion while the government national debt was around 59% of GDP. However, Croatia is still identified as a high income country with high HDI and its GDP per capita was estimated at 61% of the EU average in 2012 (The World Bank, 2015). 3.5.1 Business Culture It is commonly believed that Croatia has a formal business culture, but in reality, its people are receptive to other cultures. The country possesses a high literacy level and skilful workforce, with more than 70% of Croatians using the internet. Concerning its work-life balance, business participants express a strong family-consciousness (Passport to Trade, n.d). 3.5.2 Market Sectors The dominant economic factor is the service sector, with its tourism ranked 18th in the world and comprising 20% of GDP. This is followed by the industrial sector with high revenue from textiles, leather, food, drinks and tobacco. Oil production also comprises 11.8% of total export revenue (IMF, 2011). Most of the workforce is employed in the service sector, while 27.2% are employed in the agricultural sector, which comprises 6% of its GDP, and is still a significant engine of Page 24 of 46 growth. However, Croatia has not been doing very well with unemployment as the rate peaked at 22.4% at the beginning of 2014, although it currently stands at 15.9% as of August 2015. Additionally, Croatia enjoys the exceptional advantage of being at the crossroad of the EU and South East Europe. Transportation is becoming significantly a propulsive sector and the new railway sector aims to increase the efficiency and competitiveness of the market. (Croatia.eu, n.d.) 3.5.3 Investment Characteristics Croatia is an ideal country to invest due to the wealth of advantages the country provides. It is attractive in that there is a double taxation avoidance agreement with some countries and zero customs within the EU. Additionally, Croatia possesses the strategic position due to its location in the Europe (AIK-Invest, n.d). According to the Economic Complexity Index (ECI, n.d.), Croatia is one of the largest exporting countries and it main trade partners are the rest of the countries in Europe. Currently, most foreign direct investment in Croatia is in financial intermediation (31.4%), manufacturing (18.0%), and trade (14.8%) while there are smaller percentages in the Hospitality and R&D sectors. In 2014, the United Nations Development Programme (UNDP, 2014) stated a creative project in Croatias less developed countries, to use EU-funded projects in tourism as its employment and growth engine. Market liquidity is essential for market development. Some liquid stocks in Croatia such as INA, Telecom, and Podravka have impacted on the markets liquidity. During the financial crisis of 2007-08, Croatias turnover of liquid and illiquid stocks dropped by 31% and 68% respectively, but they consequently increased in the post-crisis period. The presence of illiquidity represents the main barrier to future stock market and foreign investment, owing to the low inflow of capital (Minovic, n.d). Croatia joined the EU in July 2013, and has since been very sensitive to any negative economic developments within the Union. As it is still in recession, the timing may have been unwise, although it would still pay dividends in the long run, as Croatia now has access to Europes free-trade market. Some other issues currently facing Croatia include a backlogged judicial system, inefficient governance and public administration, and corruption. It is currently running a trade deficit of 49.3 billion Euros. Page 25 of 46 Figure 20 3.6 Concluding Frontier Markets Given the nature of frontier markets relatively illiquid in equity markets, and comprising only a small percentage of global financial markets, risks can be substantial. However, we have plenty of ways to mitigate these hurdles. Fund managers can always design a well-diversified portfolio that spread out the risks, since frontier markets have low correlations between both emerging markets and developed markets. By doing so, investors can actually enjoy lower overall risk if combined efficiently. Moreover, globally, frontier markets form the fastest-growing economies. We would be unwise to ignore their growth potential. A good example would be that both Qatar and the United Arab Emirates had graduated from frontier market, to emerging market status in 2014. The others are yet to prosper, but should not let us wait too long. Although the fledgling frontier markets seem attractive at the stage, many investors seem prone to shun them, claiming the downsides outweigh the upsides. 4. Developed Economies 4.1 Norway Norwegians enjoy the highest standards of living the world, with this country consistently topping the Human Development Index from 2006 to 2009, and then again from 2009 to 2014. This is the primary reason why Norway was chosen to form part of our research. (U.N Development Report 2009, 2014) In addition, Norway also boasts the second-highest GDP per-capita in Europe. Norway features a very low unemployment rate of 4.3%. (Eurostat) Page 26 of 46 4.1.1 Business Culture In general, Norway is an egalitarian state, with little hierarchy in firms, empowered employees with decision-making powers, brief and informal communication between colleagues and business participants.. The people trust each other, there is good work-life balance, and high gender equality at the workplace. This in part contributes to Norways low Gini coefficient, which measures income inequality in the population. (Invinor, n.d.) Norway has opted not to join the European Union, but instead participates in the EUs single market, together with Liechtenstein and Iceland, via the European Economic Area (EEA) agreement. Of particular note is the fact that Norway uses the Kroner instead of the Euro. The Norwegian kroner tend to fluctuate based on prevailing oil prices and interest rates. 4.1.2 Market Sectors Norways economy is reliant on natural resources to a significant extent. The government-controlled petroleum sector accounts for more than 20% of its GDP, and represent almost 50% of total exports. When oil prices dipped in mid-2014, Norway began to experience higher unemployment, and this has led some critics to suggest that its economy is overly-reliant on petroleum (Russia Today, 2015). GDP growth in Norway reached an average of only 0.65% from 1978 to 2015 (Trading Economics, 2015), and is currently contracting, with -0.1% growth recorded on quarter in the three months to June this year. 4.1.3 Investment Characteristics Norway is considered very welcoming towards foreign investment, with low barriers to entry for overseas businesses, and an investment regime that encourages international participation. It has the worlds largest sovereign wealth fund, which complements its high taxes and government spending. From figure 1, the 2015 Index of Economic Freedom considers Norway to possess the worlds second best property rights regime. (Heritage.org, 2015) Page 27 of 46 Figure 21 4.2 The United States of America The United States of America is currently the worlds largest economy by both nominal and real GDP estimations, accounting for 23% of world GDP (World Economic Outlook Database, 2015). The U.S. experienced an average growth rate of 3.25% from 1947 to 2015, growing 3.9% on quarter in the three months to June 2015 (Trading Economics, 2015). Real GDP growth was 3.3% from 1983 to 2008, whereas the rest of the G& advanced economies only experienced a 2.3% weighted average growth (Policy Review, 2012). It is the worlds largest importer, and second largest exporter of goods (Census.gov, 2015). The U.S. has a very diversified economy, with a GDP by industry breakdown as follows (figure 22): Value Added by Industry as a Percentage of Gross Domestic Product Bureau of Economic Analysis Release Date: April 23, 2015 Line 2006 2007 2008 2009 2010 2011 2012 2013 2014 1 Gross domestic product 100 100 100 100 100 100 100 100 100 2 Private industries 86.9 86.8 86.4 85.7 85.7 86 86.4 86.8 87.1 3 Agriculture, fishing, and hunting 0.9 1 1 1 1.1 1.3 1.2 1.4 1.2 6 Mining 2 2.2 2.7 2 2.2 2.6 2.5 2.6 2.6 10 Utilities 1.7 1.6 1.6 1.7 1.8 1.8 1.6 1.6 1.7 11 Construction 5 4.9 4.4 4 3.6 3.5 3.6 3.7 3.7 12 Manufacturing 13 12.8 12.3 12 12.2 12.3 12.3 12.1 12 Page 28 of 46 13 Durable goods 7.3 7.1 6.8 6.1 6.4 6.5 6.5 6.5 6.5 25 Nondurable goods 5.8 5.7 5.6 5.9 5.8 5.8 5.8 5.6 5.5 34 Wholesale trade 5.9 5.9 6 5.7 5.8 5.8 6 6 6 35 Retail trade 6.3 6.1 5.8 5.8 5.8 5.7 5.8 5.8 5.8 40 Transportation and warehousing 2.9 2.8 2.9 2.8 2.8 2.9 2.9 2.9 2.9 49 Information 4.7 4.9 5 4.9 4.9 4.7 4.6 4.6 4.6 54 Finance, insurance, real estate, and leasing 20 19.9 19.1 19.9 19.7 19.7 19.9 20.2 20.2 55 Finance and insurance 7.6 7.2 6.2 6.7 6.7 6.7 7 7.2 7.2 60 Real estate and rental and leasing 12.4 12.7 12.9 13.2 13 13 12.9 13 13 65 Professional and business services 11.1 11.4 11.9 11.5 11.6 11.7 11.9 11.8 12 66 Professional, scientific, and technical services 6.5 6.7 7.2 6.9 6.8 6.9 7 6.9 7 70 Management of companies and enterprises 1.7 1.8 1.8 1.7 1.8 1.8 1.9 1.9 2 71 Administrative and waste management 2.9 3 3 2.9 2.9 2.9 3 3 3.1 74 Educational, health care, and social assistance 7.3 7.4 7.8 8.4 8.3 8.3 8.3 8.2 8.2 75 Educational services 0.9 1 1 1.1 1.1 1.1 1.1 1.1 1.1 76 Health care and social assistance 6.4 6.4 6.8 7.3 7.2 7.2 7.1 7.1 7.1 81 Arts, entertainment, accommodation 3.7 3.7 3.6 3.6 3.6 3.6 3.7 3.7 3.8 82 Arts, entertainment, and recreation 0.9 1 1 1 1 1 1 1 1 85 Accommodation and food services 2.7 2.7 2.7 2.7 2.6 2.7 2.7 2.7 2.8 88 Other services, except government 2.4 2.3 2.2 2.3 2.2 2.2 2.2 2.2 2.2 89 Government 13.1 13.2 13.6 14.3 14.3 14 13.6 13.2 12.9 90 Federal 4.2 4.2 4.3 4.6 4.7 4.6 4.4 4.2 4 95 State and local 8.9 9 9.3 9.7 9.6 9.4 9.1 9 8.8 99 Private goods-producing industries 21 20.9 20.5 18.9 19.1 19.7 19.7 19.8 19.6 100 Private services-producing industries 66 65.9 65.9 66.7 66.6 66.4 66.7 67 67.5 Source: http://www.bea.gov/industry/gdpbyind_data.htm Figure 22 In 2012, employment by sector was split into 79.7% in the service sector, 19.2% in the manufacturing sector and 1.1% in the agriculture sector (CIA World Factbook, 2013). 4.2.1 Business Culture The business culture in the U.S. is characterised by the private sectors domination of economic decision making, which in turn is aided by loose regulation and government intervention (Forbes, 2006). This is in addition to courts which widely protects property rights and enforces contracts. http://www.bea.gov/industry/gdpbyind_data.htmPage 29 of 46 4.2.2 Growth Engines: Research, Development, and Entrepreneurship Perhaps the defining aspect of the U.S.s suzerainty relationship with the rest of the world for much of the 20th century is based on the ability of its people to innovate, producing new research and development which is then channelled into its business environment. The entrepreneurial spirit is a key driver of much R&D. Research done by the Global Entrepreneurship Monitor indicates that half of all working men in the United States probably have a period of self-employment of one or more years; one in four may have engaged in self-employment for six or more years. Participating in a new business creation is a common activity among U.S. workers over the course of their careers." (Springer, 2007) Business creation has been increasingly noted by scholars to be a key growth driver in the United States, as well as Western Europe. Of salient interest may be the fact that citizens of the U.S. have been observed to be particularly willing to try new products of all types, and to urge manufacturers to improve their current product lines. (The Economist, 2009) 4.2.3 Components of the Economy The U.S. remains the largest manufacturer in the world, with an output of US$2.4 trillion in 2013, greater than Germany, India, France, and Brazil combined. (Thomasnet, 2013) Its main industrial sectors are petroleum, steel, the auto industry, construction and agricultural machinery, aerospace technologies, telecommunications, electronics, chemicals, processed foods, consumer products, mining, and lumber. 4.2.4 Investment Characteristics Both Moodys and Fitch designate the U.S. as having a AAA credit rating, the highest available. However, Standard & Poors has assigned the U.S. with a AA+ domestic and foreign rating, the second highest available. Although Americans have the highest average household income among OECD nations (OECD, 2014), income inequality is becoming a growing problem, with the top 1% of earners accounting for 95% of all income gains, from 2008 to 2012. (Saez, Emmanuel, 2013) Page 30 of 46 Some critics believe that this inequality presents a danger to democracy and social stability (Krugman, 2011), or a sign of national decline (Packer, 2011), while others disagree, stating that income inequality is in itself not harmful to the economy or to society, but merely serves as a distraction from real problems, such as long-term unemployment, and slow growth. (Winship, 2013) The U.S. Treasury has been obtaining negative interest rates on government debt since 2010. (Federal Reserve, 2015) This indicates that the market, together with institutional investors such as pension funds, insurance companies, or mutual funds, believe that alternatives with sufficiently low risk to hedge their positions against, do not exist (Reinhard and Sbrancia, 2011) (Wessel, 2012). By one measure, which is the value of its listed companies securities, the New York Stock Exchange (NYSE) is in excess of 300% of the size of any other stock exchange in the world (World Federation of Exchanges, 2011). NASDAQ, another U.S. stock exchange, is the worlds 3rd largest, after the NYSE and Japans Tokyo Stock Exchange. Americas finance industry composed 50% of non-frm business profits in 2010, with finance industry income comprising 7.5% of GDP, as well as 20% of all corporate income. According to research conducted by the International Monetary Fund, the Bank for International Settlements, and economists from Harvard University and the University of Chicago, the U.S. financial sector is so large that it impedes economic growth (Tankersley. 2014) .It was calculated that in 2014 that while R&D workers add $5 to GDP for every dollar they earn, workers in the finance industry cause GDP to contract by $0.60 for every dollar they are paid (Cecchetti and Enisse, 2015). The U.S. is the second largest trading nation in the world (Financial Times, 2014) . In addition, around 60% of all funds used in international trading is U.S. dollars (Reuters, 2015). Its trade deficit stood at $450.3 billion in 2013, while its deficit with China was $318 billion in 2013. (Palmer, 2012) In addition, Chinas foreign exchange reserves included $1.6 trillion of U.S. securities as of 2013 (Congressional Research Service, 2014), and it is one of Americas ten largest trading partners (Census.gov. 2010). Page 31 of 46 4.2.5 Capital Flows Since late 2013, capital flows into emerging market have weakened, as growth across Asia slowed due to weakening economies in that region (Bloomberg, 2013). With the slowdown of China, unrest across Thailand following a recession, and Malaysias ringgit weakening by 25% since the start of 2015, more money has started flowing back into advanced economies. This is because they have started showing signs of recovery, and are generally viewed as being more stable than emerging markets. (Trading Economics, 2015) North American funds obtained the lions share of the $155.6 billion of investment into developed-market equity exchange traded derivatives, from January to July 2013, receiving $102.4 billion (65.8%). Japan managed to attract $28 billion, a record breaking amount, and Europe-centric funds received$4.3 billion. On the other hand, out of emerging market funds came $7.6 billion. (Rowley, 2015) Figure 23 4.3 Japan Japan has the worlds third largest economy by nominal GDP (World Bank, 2013). It is also the second largest developed economy in the world (OECD, 2013). Additionally, Japan has the worlds largest electronics goods industry (OICA, 2013), and is the third largest manufacturer of automobiles in the world (World Intellectual Property Organization, 2013). It is frequently considered to be one of the worlds most innovative countries, topping several measurements of global patent filing figures. Page 32 of 46 Perhaps of interest to investors is the fact that while Japan has the second highest life expectancy of any country (WHO, 2009), its population is rapidly ageing, with 24.1% of the population being over 65 years of age in 2012 (Japan Statistics Bureau, 2013). This number is projected to jump to almost 40% of the population by 2050. This demographic issue is expected to have a major impact on the Japanese economy, with workforce population potentially dropping heavily, and also add burdens, such as increases in the costs of social security benefits; for example, the public pension plan (Gonzalo Garland, 1995). The Japanese economy used to grow at a remarkable pace: It grew on average 10% in the 1960s, 5% in the 1970s, and 4% in the 1980s, becoming the second largest economy in the world by 1978(Marshall Cavendish, 2013). It spent almost nothing on defence, allowing it to grow at such a rapid pace (JEI, 2015). Rapidly rising asset and real estate prices caused the Japanese economic bubble in the mid-1980s, which imploded dramatically when the Tokyo Stock Exchange crashed in 1990-1992, and growth in the 1990s hovered at about 1.5%, much lower than other developed countries. This was how the term, Japans Lost Decade, came about. Japans GDP showed an average growth of 2.08% from 1980 to 2015. In the second quarter of 2015, its economy contracted, shrinking by -1.2%, in contrast to the 4.5% growth it experienced in the first quarter of 2015 (Trading Economics, 2015). Its growth in the last quarter of 2014 was initially estimated at 2.2%, bouncing back from recession in the previous quarter (Wall Street Journal, 2015). However, this was revised down to 1.5%, due to lower estimate for capital investment and inventories (Financial Times, 2015). 4.3.1 Market Sectors In 2012, the service industry contributed to the bulk of Japans GDP, making up 73.18%. Industry came second, contributing 25.6%, while the remaining 1.22% of Japans GDP was attributed to agriculture. Japan possesses inadequate natural resources to support its own economy or population, and its one of the top three importers of agricultural products in the world. It maintains its market position by Page 33 of 46 exporting products in which it holds a competitive advantage; for example, engineering-oriented, and R&D led products. It does so in exchange for petroleum and raw materials (OECD, 2007). 4.3.2 Investment Characteristics Part of the reason why Japans GDP growth figures for the fourth quarter of 2014 were revised downwards, was due to shrinking inventory growth. However, this was offset by an increase in household consumption, which went up by an annualised rate of 2%, in contrast to the previously reported figure of 1.1%. Additionally, Abenomics do not seem to working, as businesses remain hesitant to increase investment, in spite of record low interest rates, and strengthening stock prices. Growth remains unsteady (Wall Street Journal, 2015). On the other hand, Japan reported a rise in their current account surplus, from 853 billion Yen in December, to 1,058 billion Yen in January. This is mainly attributed to falling oil prices and is welcome news, coming after its current account dropped into a deficit, which was caused by the Fukushima disaster and the subsequent increase in oil imports. Japans credit rating was recently cut from AA- to A+, by Standard & Poors on the 16th of September 2015. The reason given was that the S&P analysts do not feel that the policies of Shinzo Abes (Japans current Prime Minister) administration, would not be able to reverse Japans lacklustre growth and continued problems with deflation, anytime soon (Bloomberg, 2015). Japan is currently rated A1 by Moodys, with a positive outlook, and A by Fitch, also with a positive outlook (Trading Economics, 2015). Linked to Japans low growth rate is its endemic, decades-long problem with deflation (MIT, 1999). The Bank of Japan began using a policy of zero interest rates in 1998 by instituting quantitative easing, as suggested by Nobel Prize winner Paul Krugman. Although the economy showed some signs of recovery in 2005, with GDP growth of 2.8% (Hisane, 2006), in 2008 it was concluded that the quantitative easing strategy had failed (Spiegal, 2006); Japan by then had the worlds lowest interest rates, but deflation still existed (OECD, 2008). Recently, however, the Bank of Japan had announced that in an attempt to halt deflation, it would be purchasing between 60-70 trillion Yen in bonds and securities, effectively doubling Japans Page 34 of 46 money supply within two years. Financial markets reacted bullishly to this news; the Nikkei 225 gained in excess of 42% in value since November 2012 (Riley, 2013). As a side note, because of deflation pushing down the value of the Yen relative to other countries, Japan has become the biggest export market for 15 trading nations worldwide. It is currently the worlds largest creditor nation, holding its position as a net international investment surplus country. From 2010 to 2014 it has held its position as the worlds second largest holder of private financial assets, holding 11.716 trillion Euros worth in 2014. As of 2013, Japan was home to 62 companies from the Fortune Global 500, a ranking of top 500 corporations in the world, in terms of revenue (Chandler, 2011) (Allianz Global Wealth Report 2014). Source: http://www.tradingeconomics.com/japan/gdp-growth-annualized Figure 24 http://www.tradingeconomics.com/japan/gdp-growth-annualizedPage 35 of 46 Figure 25 Source: https://rwer.wordpress.com/2011/03/24/emerging-vs-developed-countries-gdp-growth-rates-1986-to-2015/ Figure 26 5. Compare and Contrast In this essay, we have looked at the characteristics of different developed economies, in particular whether they are ripe for investing or not. Having done this, we can now compare between developed and developing economies, and examine why people would rather invest in emerging markets, First of all, let us look at Saudi Arabia, which is similar in some respects to Norway. They are both overly reliant on natural resources. If Saudi Arabia wishes to attain the status of a developed country, it should follow the Scandinavian model, and improve its standards of living, by improving https://rwer.wordpress.com/2011/03/24/emerging-vs-developed-countries-gdp-growth-rates-1986-to-2015/https://rwer.wordpress.com/2011/03/24/emerging-vs-developed-countries-gdp-growth-rates-1986-to-2015/Page 36 of 46 its education and health care systems, emancipate women, and allow for more liberal values. Also, it could do with detaching itself from its neighbouring countries, so that its economy is not affected by movements in the region, following Norways example of staying out of the EU. The jewel in the crown of emerging markets: China, the only BRIC nation which held true to its promise, and is still showing healthy growth. It runs parallels with both the U.S. and Japan. Along with the U.S., China is a net exporter to the rest of the world, and is very thirsty for natural resources. These two countries top the list of countries with the highest oil consumptions in the world, with the U.S. consuming around 19 million barrels per day in 2011, with China consuming about 10 million barrels per day in the same year. Japan comes third, consuming 4.5 million barrels per day (CIA World Factbook, 2011). Also, both China and the U.S. face the problem of a widening income gap. Reforms have brought huge capital inflows to China, but only a small percent benefit from this change. In the U.S. 95% of income growth from 2009-12 was captured be the top 1% of income earners. However, there are several major differences between the U.S. and China. To begin with, the U.S. runs on what is effectively a two-party system, which can lead to inefficient bureaucracy, and even government shutdowns. China, on the other hand, exists under a single-party system, which has been credited with helping to stabilise the country. Next, the private sector of the U.S. dominates economic decision making, and it boasts loose regulation and lack of government intervention. While this has led to breath-taking profits being generated by the service sector, it has also been pointed out that the laxness of the rules governing the financial industry has led to the most cataclysmic market crashes of the 21st century, nearly causing global economic meltdowns, with the effects still reverberating today. Chinas government is still firmly in control of its markets, with recent interventions preventing the Renminbi from appreciating beyond certain levels. However, economic power is being slowly transferred from the government to the market. One example is the introduction of a new taxation policy to increase their tax-to-GDP ratio. Another significant difference between the two giants are their growth engines. While the U.S. relies on technological innovation and entrepreneurship to maintain its hegemony over the world economy, and has a hugely diversified economy, China is still relatively reliant on agriculture and manufacturing, with the agricultural industry forming 9.2% of Chinas GDP, compared to 1.22% for Japan, and 1.1% in the U.S. China is a world leader in the agriculture sector, which continues to expand. Page 37 of 46 Finally, the biggest difference between China and the U.S. is in their debt composition. The majority of Chinese debt is owned locally and in local currency, due to the high savings rate of its citizens. However, China holds the vast majority of U.S. debt; this situation was exacerbated during the 2007-08 global recession, when many large U.S. banks and financial institutions were on the brink of bankruptcy, and needed large sums of equity to keep them afloat. China holds $318 billion of the U.S. $450.3 billion trade deficit in 2013, while it is one of Americas 10 largest trading partners. On the other hand, China had a positive trade surplus of about US$340 billion in 2014. The major difference between developed and developing countries seems to lie in their standards of living. Countries like Norway and Japan are noted for their egalitarian societies, with minor income inequalities, although male patriarchy and gender inequality remain problems in Japan. China, Turkey, and Nigeria, on the other hand, have significant issues with poverty. According to the Wall Street Journal, China has a poverty rate of 15%, or about 200 million people. Turkey is a similar example with 16% of its population living below the poverty line. In Nigeria, a staggering 33.1% of the population live below the poverty line (World Bank, 2014). In Saudi Arabia, social problems are omnipresent. It faces high youth unemployment, competitive imbalance between nations and foreign workers, and gender inequality in the workplace, all of which could be potential sources of unrest. Let us now shift our focus to examine the similarities and differences between emerging markets themselves. The most noticeable difference can be seen in population sizes. China has the worlds largest population, while one in four Africans is a Nigerian, with a population of 182.2 million. In the meantime, Saudi Arabia has a population of about 29 million, while Croatia has a population of just 4.2 million. With large populations come large markets, high savings rates and a large labour force, and these combine to drive the growth rates of the large developing countries. However, while Saudi Arabia and Nigeria both have high population growth rates, Croatia and China are facing population declines, with Croatia in particular continuously experiencing negative growth rates. A similarity that is distinct among developing countries is their reliance on natural resources. All of the emerging and frontier markets described in this essay, with the notable exception of Croatia, are heavy consumers of natural resources. China is a net importer of are gold, petroleum, iron, cars, and integrated circuits from the U.S., Australia, Japan, and South-east Asia. Turkey has a remarkably similar structure, importing gold, refined petroleum, iron, cars, and gas from Europe, China, and the Page 38 of 46 U.S. Nigeria, once a net exporter of food, is now a net importer, in order to feed its growing population. Saudi Arabia has a dearth of renewable water resources, with 40% of its water coming from non-renewable sources, and 50% coming from desalination, which is piped from the Persian Gulf from a distance of over 460 kilometres. Lastly, political instability remains a problem for some emerging markets. China faces unrest in Tibet and its western region of Xinjiang, with disgruntled ethnic minorities who fear being assimilated by the dominant Han Chinese ethnic group, leading various separatist movements in recent years. In Nigeria, political instability, potential threat of terrorist attacks, and crushing poverty all contribute to investors negative view of Nigeria. Saudi Arabia is located in a region that is rocked by civil wars, mass migration of refugees, and interventions by the U.S., Russia, and other Arab countries, most notably Iran. If these countries can overcome these internal and external problems and stabilise their political situations, their growth potential could truly reach unrivalled heights. 6. Conclusion In general, emerging and frontier markets are showing healthy growth rates and robust economies, with an average growth of about 6.5% per annum. This is the biggest reason why people prefer to invest in these markets, as opposed to developed countries. However, many of them still have significant issues to overcome before they can be considered developed countries; with high returns, come high risks. China, Saudi Arabia, and Turkey face significant accusations of human rights abuses, with Chinas clampdown on political dissidents, lack of press freedoms, and draconian censorship laws; Saudi Arabias treatment of women and its Shia minorities; and Turkeys treatment of its Kurdish minorities. While China and Nigeria both have large economies, being the worlds 2nd and 21st largest economies respectively, they have very low per-capita GDPs, being placed 81st and 123rd, respectively. By contrast, Norway, the U.S., and Japan, were ranked 6th, 9th, and 26th, respectively in terms of per-capita GDP. To truly overtake the current developed economies, the developing countries must raise their standards of living significantly across the board, not just for the top few percentiles of its people. Judging by the size of their populations, this could prove to be a daunting task. Page 39 of 46 To sum up, as the U.S. prepares to raise interest rates, we are seeing increased occurrences of accelerating capital outflow from emerging markets, in addition to decreased foreign investor flows to these same markets. This is also partly due to the increasing risk aversion behaviour of investors, due to the perceived instability of the BRICs: In particular, caused by Brazils present currency crisis as investors rush to minimise losses caused by exchange rate disparities, and the sanctions imposed on Russia, which have been crippling its economy. In China, however, the major cause of capital outflows was due to repayment of foreign currency loans by emerging market firms, preserving its perceived stability for now (Financial Times, 2015). There are also fears that the growth of emerging markets have led to the development of a bubble, which is about to be popped, led by the trigger of the U.S. Federal Reserves tapering of quantitative easing policies (Colombo, for Forbes, 2014). There are also reports postulating that the entire South-east Asian region is caught up in a huge bubble, and that the credit-and-debt-fuelled bubble of Singapore, the worlds 4th largest financial centre, is about to burst, led by a plummeting Malaysian ringgit, and capital flight from the region (Colombo, for Forbes, 2014). If this happens, the Asian Economic Crisis of 1997 could repeat itself, hitting markets globally, and severely hinder the nascent recovery of Europe, and other developed regions. Word Count: 9,810 Page 40 of 46 References AIK-Invest. (2012). Why invest in Croatia. Retrieved October 16, 2015 from http://www.aik-invest.hr/en/why-croatia/ Amadeo, K. ( Jan. 2014). 5 Traits of Emerging Markets. About.com News & Issues. Retrived form http://useconomy.about.com/od/glossary/g/emerging_market.htm Anderson, J. (May 22, 2006). Tax Misery & Reform Index. Forbes. Retrieved November 17, 2008 from http://www.forbes.com/forbes/welcome/ Ando, A., Moro, A & Cordoba, J.P. (August 1995). Dynamics of Demographic Development and its impact on Personal Saving : case of Japan. Ricerche Economiche, Vol 49 Attwood, Ed. (2015). Freeze on new projects, promotions, as Saudi orders cutbacks for Q4. Retrieved October 15, 2015 from http://www.arabianbusiness.com/freeze-on-new-projects-promotions-as-saudi-orders-cutbacks-for-q4-608590.html Brandmeir, K., Grimm, M., Heise, M. & Holzhausen, A. (2014). Allianz Global Wealth Report 2014. Retrieved from https://www.allianz.com/v_1411404269000/media/press/document/Allianz_Global_Wealth_Report_2014_en.pdf CBS News. (February 11, 2009). U.S. Workers Worlds Most Productive. Retrieved April 23, 2013 from http://www.cbsnews.com/news/us-workers-worlds-most-productive/ Cecchetti, S.G. & Kharroubi, E. (2015). Why does Financial Sector Growth Crowd Out Real Economic Growth? BIS Working Papers No 490. Bank for International Settlements. Retrieved 20 September, 2015 from http://www.bis.org/publ/work490.pdf Cheap oil drags on Norways economy. (2015, August 21). RT. Retrieved from https://www.rt.com/business/313004-cheap-oil-norway-gdp/ CIA.gov. (September 25, 2013). Retrieved October 26, 2013 from https://www.cia.gov/library/publications/the-world-factbook/geos/us.html Anderlini, J. & Hornby, L. (2014). China overtakes US as world's largest goods trader. Financial Times. Retrieved January 10, 2014.from http://www.ft.com/cms/s/0/7c2dbd70-79a6-11e3-b381-00144feabdc0.html#axzz2q8OrFdV3 Country statistical profile: Japan. OECD iLibrary. (2013). Retrieved 19 June 2013. Retrieved from http://www.oecd-ilibrary.org/economics/country-statistical-profile-japan_20752288-table-jpn Colombo, J. (Feb 7, 2014). How Central Banks Are Popping the Emerging Markets Bubble. Forbes. Retrieved from http://www.forbes.com/sites/jessecolombo/2014/02/07/how-central-banks-will-pop-the-emerging-markets-bubble/ http://www.aik-invest.hr/en/why-croatia/http://www.aik-invest.hr/en/why-croatia/http://useconomy.about.com/od/glossary/g/emerging_market.htmhttp://www.forbes.com/forbes/welcome/http://www.arabianbusiness.com/freeze-on-new-projects-promotions-as-saudi-orders-cutbacks-for-q4-608590.htmlhttp://www.arabianbusiness.com/freeze-on-new-projects-promotions-as-saudi-orders-cutbacks-for-q4-608590.htmlhttps://www.allianz.com/v_1411404269000/media/press/document/Allianz_Global_Wealth_Report_2014_en.pdfhttps://www.allianz.com/v_1411404269000/media/press/document/Allianz_Global_Wealth_Report_2014_en.pdfhttps://www.allianz.com/v_1411404269000/media/press/document/Allianz_Global_Wealth_Report_2014_en.pdfhttp://www.cbsnews.com/news/us-workers-worlds-most-productive/http://www.bis.org/publ/work490.pdfhttps://www.rt.com/business/313004-cheap-oil-norway-gdp/https://www.rt.com/business/313004-cheap-oil-norway-gdp/https://www.cia.gov/library/publications/the-world-factbook/geos/us.htmlhttps://www.cia.gov/library/publications/the-world-factbook/geos/us.htmlhttp://www.ft.com/cms/s/0/7c2dbd70-79a6-11e3-b381-00144feabdc0.html#axzz2q8OrFdV3http://www.ft.com/cms/s/0/7c2dbd70-79a6-11e3-b381-00144feabdc0.html#axzz2q8OrFdV3http://www.ft.com/cms/s/0/7c2dbd70-79a6-11e3-b381-00144feabdc0.html#axzz2q8OrFdV3http://www.oecd-ilibrary.org/economics/country-statistical-profile-japan_20752288-table-jpnhttps://en.wikipedia.org/wiki/OECD_iLibraryhttp://www.oecd-ilibrary.org/economics/country-statistical-profile-japan_20752288-table-jpnhttp://www.oecd-ilibrary.org/economics/country-statistical-profile-japan_20752288-table-jpnhttp://www.oecd-ilibrary.org/economics/country-statistical-profile-japan_20752288-table-jpnhttp://www.forbes.com/sites/jessecolombo/2014/02/07/how-central-banks-will-pop-the-emerging-markets-bubble/http://www.forbes.com/sites/jessecolombo/2014/02/07/how-central-banks-will-pop-the-emerging-markets-bubble/Page 41 of 46 Colombo, J.(Jan 13,2014). Why Singapore's Economy Is Heading For An Iceland-Style Meltdown. Forbes. Retrieved from http://www.forbes.com/sites/jessecolombo/2014/01/13/why-singapores-economy-is-heading-for-an-iceland-style-meltdown/ Christopher B. P., CFA & Brad R., CFA. (2013). Exploring the next frontier: A review of frontier equity markets.Vanguard Research. Retrieved from https://personal.vanguard.com/pdf/s357.pdf Chandler, M. (19 August, 2011). The yen is a safe haven as Japan is the worlds largest creditor. Credit Writedowns. Retrieved 19 June 2013 from https://www.creditwritedowns.com/2011/08/japan-safe-haven.html Current Status of Agriculture and Rural Economy in China (Sept. 2015), Ministry of Agriculture of the People's Republic of China. Ministry of Agriculture. Retrived form http://english.agri.gov.cn/overview/201301/t20130128_10648.htm Croatia.eu. (n.d.). Branch of the Economy. Retrieved October 16, 2015 from http://croatia.eu/article.php?lang=2&id=32 China Overview (2015). China Overview. World Bank, Retrived from http://www.worldbank.org/en/country/china/overview China Economic Outlook ( Sept. 2015). Economic Forecasts from the World's Leading Economists. Focus Economics, Retrived form http://www.focus-economics.com/countries/china Doug P. (August 23, 2012). U.S. Trade Gap with China Cost 2.7 Million Jobs: Study. Reuters. Retrieved from http://www.reuters.com/article/2012/08/23/us-usa-china-trade-idUSBRE87M0T420120823 Eurostat. (October 30, 2015). Euro area unemployment rate at 11.0%. Retrieved October 13, 2015 from http://ec.europa.eu/eurostat/documents/2995521/7012746/3-30092015-AP-EN.pdf/9adc381a-dbab-4e56-acde-eeeab6420971 Eia Beta. (n.d.). U.S. Energy Information Administration. Retrieved October 16, 2015 from http://www.eia.gov/beta/international/ Employment Plan 2014. (2014). Retrieved October 16, 2015 from https://g20.org/wp-content/uploads/2014/12/g20_employment_plan_saudi_arabia.pdf Emerging Market Economy Definition| Investopedia. (Jan. 2004). Investopedia.Retrived form http://www.investopedia.com/terms/e/emergingmarketeconomy.asp Frontier Markets Definition | Investopedia. (June 2008).Investopedia. Retrived form http://www.investopedia.com/terms/f/frontier-market.asp Fenty, S., Dan, C., Glenn C., & Rick Z. (2015). Transitioning Emerging Markets Equities. State Street. Retrieved October 11, 2015 from http://www.statestreet.com/content/dam/statestreet/documents/Articles/TransitioningEmergingMarketEquities_July2015.pdf http://www.forbes.com/sites/jessecolombo/2014/01/13/why-singapores-economy-is-heading-for-an-iceland-style-meltdown/http://www.forbes.com/sites/jessecolombo/2014/01/13/why-singapores-economy-is-heading-for-an-iceland-style-meltdown/https://personal.vanguard.com/pdf/s357.pdfhttps://personal.vanguard.com/pdf/s357.pdfhttps://www.creditwritedowns.com/2011/08/japan-safe-haven.htmlhttps://www.creditwritedowns.com/2011/08/japan-safe-haven.htmlhttp://english.agri.gov.cn/overview/201301/t20130128_10648.htmhttp://english.agri.gov.cn/overview/201301/t20130128_10648.htmhttp://croatia.eu/article.php?lang=2&id=32http://croatia.eu/article.php?lang=2&id=32http://www.worldbank.org/en/country/china/overviewhttp://www.worldbank.org/en/country/china/overviewhttp://www.focus-economics.com/countries/chinahttp://www.reuters.com/article/2012/08/23/us-usa-china-trade-idUSBRE87M0T420120823http://www.reuters.com/article/2012/08/23/us-usa-china-trade-idUSBRE87M0T420120823http://ec.europa.eu/eurostat/documents/2995521/7012746/3-30092015-AP-EN.pdf/9adc381a-dbab-4e56-acde-eeeab6420971http://ec.europa.eu/eurostat/documents/2995521/7012746/3-30092015-AP-EN.pdf/9adc381a-dbab-4e56-acde-eeeab6420971http://www.eia.gov/beta/international/http://www.eia.gov/beta/international/https://g20.org/wp-content/uploads/2014/12/g20_employment_plan_saudi_arabia.pdfhttps://g20.org/wp-content/uploads/2014/12/g20_employment_plan_saudi_arabia.pdfhttp://www.investopedia.com/terms/e/emergingmarketeconomy.asphttp://www.investopedia.com/terms/f/frontier-market.asphttp://www.investopedia.com/terms/f/frontier-market.asphttp://www.statestreet.com/content/dam/statestreet/documents/Articles/TransitioningEmergingMarketEquities_July2015.pdfhttp://www.statestreet.com/content/dam/statestreet/documents/Articles/TransitioningEmergingMarketEquities_July2015.pdfhttp://www.statestreet.com/content/dam/statestreet/documents/Articles/TransitioningEmergingMarketEquities_July2015.pdfPage 42 of 46 FTSE QUALITY OF MARKETS CRITERIA (EUROPE Developed). (2015). Retrived from http://www.ftse.com/products/downloads/Europe-Developed_latest.pdf Foreign Trade. (2015). US International Trade Data. Retrieved from http://www.census.gov/foreign-trade/data/index.html Foreign Trading Statistics. (2010). Top Trading Partners - Total Trade, Exports, Imports. Retrieved from http://www.census.gov/foreign-trade/statistics/highlights/top/top1012yr.html Ghias, S. (2015). How To Invest In The Saudi Arabia Stock Exchange. Retrieved October 16, 2015 from http://www.investopedia.com/articles/investing/030215/how-invest-saudi-arabia-stock-exchange.asp Georgina, H. (Dec. 2014). Investors Grapple with Emerging-Markets Political Risk. International Investor. Retrived form http://www.institutionalinvestor.com/article/3408751/banking-and-capital-markets-emerging-markets/investors-grapple-with-emerging-markets-political-risk.html#.ViExM_mrTIU Gillian, T. (2010). The Story of the Brics. Financial Times. Retrived from http://www.ft.com/cms/s/0/112ca932-00ab-11df-ae8d-00144feabdc0.html Guerrero, T. (May, 2014).Frontier markets more profitable, less volatile.Financial Times. Retrieved from http://blogs.ft.com/beyond-brics/2014/05/22/guest-post-frontier-markets-more-profitable-less-volatile/ Hagopian, K. & Ohanian, L. (August 1, 2012). Policy Review (Hoover Institution Stanford University). Retrieved October 12, 2015 from http://www.hoover.org/publications/policy-review Heritage. (2015). 2015 Index of Economics: Norway. Retrieved October 10, 2015 from http://www.heritage.org/index/country/norway Hierarchy Structure. (n.d.). Saudi Arabia Political Hierarchy. Retrieved October 14, 2015 from http://www.hierarchystructure.com/saudi-arabia-political-hierarchy/ Heritage. (n.d.). Saudi Arabia. Retrieved October 12, 2015 from http://www.heritage.org/index/country/saudiarabia Human Development Report. hdr.undp.org. (2009, October 5). Retrieved October 5, 2009 from http://hdr.undp.org/en/media/HDR_2009_EN_Complete.pdf International Monetary Fund. (2015). Retrieved October 9, 2015 from "World Economic Outlook Database, April 2015". International Monetary Fund. (2011). Republic of Croatia: 2011 Article IV Consultation. Retrieved from https://www.imf.org/external/pubs/ft/scr/2011/cr11159.pdf Invest in Norway. (n.d.). Business Culture. Retrieved October 10, 2015 from http://www.invinor.no/no/Doing-business-in-Norway/Business-culture/ http://www.ftse.com/products/downloads/Europe-Developed_latest.pdfhttp://www.ftse.com/products/downloads/Europe-Developed_latest.pdfhttp://www.census.gov/foreign-trade/data/index.htmlhttp://www.census.gov/foreign-trade/statistics/highlights/top/top1012yr.htmlhttp://www.investopedia.com/articles/investing/030215/how-invest-saudi-arabia-stock-exchange.asphttp://www.investopedia.com/articles/investing/030215/how-invest-saudi-arabia-stock-exchange.asphttp://www.institutionalinvestor.com/article/3408751/banking-and-capital-markets-emerging-markets/investors-grapple-with-emerging-markets-political-risk.html#.ViExM_mrTIUhttp://www.institutionalinvestor.com/article/3408751/banking-and-capital-markets-emerging-markets/investors-grapple-with-emerging-markets-political-risk.html#.ViExM_mrTIUhttp://www.institutionalinvestor.com/article/3408751/banking-and-capital-markets-emerging-markets/investors-grapple-with-emerging-markets-political-risk.html#.ViExM_mrTIUhttp://www.ft.com/cms/s/0/112ca932-00ab-11df-ae8d-00144feabdc0.htmlhttp://www.ft.com/cms/s/0/112ca932-00ab-11df-ae8d-00144feabdc0.htmlhttp://blogs.ft.com/beyond-brics/2014/05/22/guest-post-frontier-markets-more-profitable-less-volatile/http://blogs.ft.com/beyond-brics/2014/05/22/guest-post-frontier-markets-more-profitable-less-volatile/http://www.hoover.org/publications/policy-reviewhttp://www.hoover.org/publications/policy-reviewhttp://www.heritage.org/index/country/norwayhttp://www.heritage.org/index/country/norwayhttp://www.hierarchystructure.com/saudi-arabia-political-hierarchy/http://www.hierarchystructure.com/saudi-arabia-political-hierarchy/http://www.heritage.org/index/country/saudiarabiahttp://www.heritage.org/index/country/saudiarabiahttp://hdr.undp.org/en/media/HDR_2009_EN_Complete.pdfhttp://hdr.undp.org/en/media/HDR_2009_EN_Complete.pdfhttp://www.imf.org/external/pubs/ft/weo/2015/01/weodata/weorept.aspx?pr.x=23&pr.y=9&sy=2014&ey=2014&scsm=1&ssd=1&sort=country&ds=.&br=1&c=512%2C668%2C914%2C672%2C612%2C946%2C614%2C137%2C311%2C962%2C213%2C674%2C911%2C676%2C193%2C548%2C122%2C556%2C912%2C678%2C313%2C181%2C419%2C867%2C513%2C682%2C316%2C684%2C913%2C273%2C124%2C868%2C339%2C921%2C638%2C948%2C514%2C943%2C218%2C686%2C963%2C688%2C616%2C518%2C223%2C728%2C516%2C558%2C918%2C138%2C748%2C196%2C618%2C278%2C624%2C692%2C522%2C694%2C622%2C142%2C156%2C449%2C626%2C564%2C628%2C565%2C228%2C283%2C924%2C853%2C233%2C288%2C632%2C293%2C636%2C566%2C634%2C964%2C238%2C182%2C662%2C453%2C960%2C968%2C423%2C922%2C935%2C714%2C128%2C862%2C611%2C135%2C321%2C716%2C243%2C456%2C248%2C722%2C469%2C942%2C253%2C718%2C642%2C724%2C643%2C576%2C939%2C936%2C644%2C961%2C819%2C813%2C172%2C199%2C132%2C733%2C646%2C184%2C648%2C524%2C915%2C361%2C134%2C362%2C652%2C364%2C174%2C732%2C328%2C366%2C258%2C734%2C656%2C144%2C654%2C146%2C336%2C463%2C263%2C528%2C268%2C923%2C532%2C738%2C944%2C578%2C176%2C537%2C534%2C742%2C536%2C866%2C429%2C369%2C433%2C744%2C178%2C186%2C436%2C925%2C136%2C869%2C343%2C746%2C158%2C926%2C439%2C466%2C916%2C112%2C664%2C111%2C826%2C298%2C542%2C927%2C967%2C846%2C443%2C299%2C917%2C582%2C544%2C474%2C941%2C754%2C446%2C698%2C666&s=NGDPD&grp=0&a=http://www.imf.org/external/pubs/ft/weo/2015/01/weodata/weorept.aspx?pr.x=23&pr.y=9&sy=2014&ey=2014&scsm=1&ssd=1&sort=country&ds=.&br=1&c=512%2C668%2C914%2C672%2C612%2C946%2C614%2C137%2C311%2C962%2C213%2C674%2C911%2C676%2C193%2C548%2C122%2C556%2C912%2C678%2C313%2C181%2C419%2C867%2C513%2C682%2C316%2C684%2C913%2C273%2C124%2C868%2C339%2C921%2C638%2C948%2C514%2C943%2C218%2C686%2C963%2C688%2C616%2C518%2C223%2C728%2C516%2C558%2C918%2C138%2C748%2C196%2C618%2C278%2C624%2C692%2C522%2C694%2C622%2C142%2C156%2C449%2C626%2C564%2C628%2C565%2C228%2C283%2C924%2C853%2C233%2C288%2C632%2C293%2C636%2C566%2C634%2C964%2C238%2C182%2C662%2C453%2C960%2C968%2C423%2C922%2C935%2C714%2C128%2C862%2C611%2C135%2C321%2C716%2C243%2C456%2C248%2C722%2C469%2C942%2C253%2C718%2C642%2C724%2C643%2C576%2C939%2C936%2C644%2C961%2C819%2C813%2C172%2C199%2C132%2C733%2C646%2C184%2C648%2C524%2C915%2C361%2C134%2C362%2C652%2C364%2C174%2C732%2C328%2C366%2C258%2C734%2C656%2C144%2C654%2C146%2C336%2C463%2C263%2C528%2C268%2C923%2C532%2C738%2C944%2C578%2C176%2C537%2C534%2C742%2C536%2C866%2C429%2C369%2C433%2C744%2C178%2C186%2C436%2C925%2C136%2C869%2C343%2C746%2C158%2C926%2C439%2C466%2C916%2C112%2C664%2C111%2C826%2C298%2C542%2C927%2C967%2C846%2C443%2C299%2C917%2C582%2C544%2C474%2C941%2C754%2C446%2C698%2C666&s=NGDPD&grp=0&a=https://www.imf.org/external/pubs/ft/scr/2011/cr11159.pdfhttp://www.invinor.no/no/Doing-business-in-Norway/Business-culture/http://www.invinor.no/no/Doing-business-in-Norway/Business-culture/Page 43 of 46 Japans Economy in the Twentieth Century. (n.d.). Retrieved from http://www.jei.org/AJAclass/JEcon20thC.pdf Japan Economic growth revised down. (March ,2015). Financial Times, Retrieved from from http://www.ft.com/cms/s/0/3d18e2fa-c607-11e4-bd6b-00144feab7de.html#axzz3oRKjzXsK Jones, R. (2015.). Frontier Markets Can Be Perilous Places to Invest. Interactive Investor. Retrived from http://www.iii.co.uk/articles/252310/frontier-markets-can-be-perilous-places-invest Kynge, J. & Jonathan W. (2015). "Emerging Markets: Redrawing the World Map - FT.com." The Big Read. Financial Times, Retrieved October 10, 2015 from http://www.ft.com/cms/s/2/4a915716-39dc-11e5-8613-07d16aad2152.html#axzz3odgb0cE4 Kedar, G. (2015). IMF Warning: Emerging Markets Could Face Liquidity Crisis If Interest Rates Rise. International Business Times. Retrived from http://www.ibtimes.co.uk/imf-warning-emerging-markets-could-face-liquidity-crisis-if-interest-rates-rise-1521758 Krugman, P. (November 3, 2011). Oligarchy, American Style. Retrieved October 11, 2015 from http://www.nytimes.com/2011/11/04/opinion/oligarchy-american-style.html?_r=2&partner=rssnyt&emc=rss Masake, H. (2006). A Farewell to Zero. Retrieved from http://www.atimes.com/atimes/Japan/HC02Dh01.html Minovic, J.Z. (n.d.). Economic Research - Ekonomska Istrazivanja Vol. 25(3) Page:776 Morrison, W.M. & Labonte, M. (2013). Chinas Holding of U.S. Securities: Implications for the U.S. Economy. Retrieved October 11, 2015 from http://fas.org/sgp/crs/row/RL34314.pdf Moodys. (2015). Rating Action: Moody's affirms Saudi Arabia's Aa3 rating on strong fiscal buffers. Retrieved October 14, 2015 from https://www.moodys.com/research/Moodys-affirms-Saudi-Arabias-Aa3-rating-on-strong-fiscal-buffers--PR_316114 More Than 82 Million Chinese Live on Less Than $1 a Day. (Oct 15, 2015). The Wall Street. Retrieved from http://blogs.wsj.com/chinarealtime/2014/10/15/more-than-82-million-chinese-live-on-less-than-1-a-day/ MSCI. (2015). MSCI WORLD INDEX (USD). Retrieved October 11, 2015 from https://www.msci.com/resources/factsheets/index_fact_sheet/msci-world-index.pdf Mehta, A., Acadian Asset Management LLC (July, 2014). Five reasons investors shun frontier markets. Financial Times. Retrieved from http://blogs.ft.com/beyond-brics/2015/07/22/five-reasons-investors-shun-frontier-markets/ NASDAQ. (2012). Emerging Markets versus Frontier Markets. Retrived from http://www.nasdaq.com/article/emerging-markets-versus-frontier-markets-cm161882#ixzz3nuj2FtB9 National Bureau of Statistics (Sep, 2015). doi: ISSN0734-3954 http://www.jei.org/AJAclass/JEcon20thC.pdfhttp://www.jei.org/AJAclass/JEcon20thC.pdfhttp://www.ft.com/cms/s/0/3d18e2fa-c607-11e4-bd6b-00144feab7de.html#axzz3oRKjzXsKhttp://www.iii.co.uk/articles/252310/frontier-markets-can-be-perilous-places-investhttp://www.ft.com/cms/s/2/4a915716-39dc-11e5-8613-07d16aad2152.html#axzz3odgb0cE4http://www.ft.com/cms/s/2/4a915716-39dc-11e5-8613-07d16aad2152.html#axzz3odgb0cE4http://www.ibtimes.co.uk/imf-warning-emerging-markets-could-face-liquidity-crisis-if-interest-rates-rise-1521758http://www.ibtimes.co.uk/imf-warning-emerging-markets-could-face-liquidity-crisis-if-interest-rates-rise-1521758http://www.nytimes.com/2011/11/04/opinion/oligarchy-american-style.html?_r=2&partner=rssnyt&emc=rsshttp://www.nytimes.com/2011/11/04/opinion/oligarchy-american-style.html?_r=2&partner=rssnyt&emc=rsshttp://www.nytimes.com/2011/11/04/opinion/oligarchy-american-style.html?_r=2&partner=rssnyt&emc=rsshttp://www.atimes.com/atimes/Japan/HC02Dh01.htmlhttp://www.atimes.com/atimes/Japan/HC02Dh01.htmlhttp://fas.org/sgp/crs/row/RL34314.pdfhttps://www.moodys.com/research/Moodys-affirms-Saudi-Arabias-Aa3-rating-on-strong-fiscal-buffers--PR_316114https://www.moodys.com/research/Moodys-affirms-Saudi-Arabias-Aa3-rating-on-strong-fiscal-buffers--PR_316114http://blogs.wsj.com/chinarealtime/2014/10/15/more-than-82-million-chinese-live-on-less-than-1-a-day/http://blogs.wsj.com/chinarealtime/2014/10/15/more-than-82-million-chinese-live-on-less-than-1-a-day/file://///mcrns502g.isad.isadroot.ex.ac.uk/HOME/desktop/https:/www.msci.com/resources/factsheets/index_fact_sheet/msci-world-index.pdfhttp://blogs.ft.com/beyond-brics/2015/07/22/five-reasons-investors-shun-frontier-markets/http://blogs.ft.com/beyond-brics/2015/07/22/five-reasons-investors-shun-frontier-markets/http://www.nasdaq.com/article/emerging-markets-versus-frontier-markets-cm161882#ixzz3nuj2FtB9http://www.nasdaq.com/article/emerging-markets-versus-frontier-markets-cm161882#ixzz3nuj2FtB9http://www.nasdaq.com/article/emerging-markets-versus-frontier-markets-cm161882#ixzz3nuj2FtB9Page 44 of 46 Nathan J.R. (July 1, 2015). Senior Portfolio Manager. Frontier Markets: Weighing the Risks. Fwd Thinking Viewpoint. Retrieved from http://www.forwardinvesting.com/docs/frontier-markets-weighing-the-risks.pdf OEC. (n.d.). Croatia. Retrieved October 14, 2015 from http://atlas.media.mit.edu/en/profile/country/hrv/ OECD. (2007). OECD-FAO Agricultural Outlook 2007-2006. Retrieved from http://www.oecd.org/trade/agriculturaltrade/38893266.pdf OECD. (2014). Society at a Glance 2014. doi:10.1787/soc_glance-2014-en Passport to Trade. (n.d.). Croatian Business Culture. Retrieved October 16, 2015 from http://businessculture.org/southern-europe/business-culture-in-croatia/ Reinhart, C.M. & Sbrancia, M.B. (2011). The Liquidation of Government Debt. National Bureau of Economic Research working paper No. 16893. Retrieved October 13, 2015 form http://www.imf.org/external/np/seminars/eng/2011/res2/pdf/crbs.pdf Reynolds, Paul D. "Entrepreneurship in the United States", Springer, 2007, ISBN 978-0-387-45667-6 Riley, C. (4 April, 2013). Bank of Japan takes fight to deflation. CNN. Retrieved from http://money.cnn.com/2013/04/04/news/economy/bank-of-japan-decision/index.html Rowley, A. (May 4, 2013). Japan capital outflows going to US, Europe: Kuroda. Emerging Market.Retrieved from http://www.emergingmarkets.org/Article/3201402/Japan-capital-outflowsgoing-to-US-Europe-Kuroda.html Seaz, E. (September 3, 2013). Striking it Richer: The Evolution of Top Incomes in the United States. Retrieved October 10, 2015 from http://eml.berkeley.edu//~saez/saez-UStopincomes-2012.pdf Sims, D. (March 14, 2013). China Widens Lead as Worlds Largest Manufacturer. Retrieved April 4, 2014 from http://news.thomasnet.com/IMT/2013/03/14/china-widens-lead-as-worlds-largest-manufacturer Statistics Bureau.(2015). Statistical Handbook of Japan 2015: Chapter 2 - Population. Retrieved from http://www.stat.go.jp/english/data/handbook/c0117.htm#c02 Spiegel, M.M. (October 20, 2006). Did Quantitative Easing by the Bank of Japan "Work"? Retrieved from http://www.frbsf.org/economic-research/publications/economic-letter/2006/october/did-quantitative-easing-by-the-bank-of-japan-work/ Saudi Embassy. (2015). Retrieved October 12, 2015 from http://www.saudiembassy.net/about/country-information/energy/OPEC.aspx SIPRI Publications. (2014). Retrieved October 16, 2015 from http://books.sipri.org/product_info?c_product_id=476 http://www.forwardinvesting.com/docs/frontier-markets-weighing-the-risks.pdfhttp://www.forwardinvesting.com/docs/frontier-markets-weighing-the-risks.pdfhttp://atlas.media.mit.edu/en/profile/country/hrv/http://atlas.media.mit.edu/en/profile/country/hrv/http://www.oecd.org/trade/agriculturaltrade/38893266.pdfhttp://www.oecd.org/trade/agriculturaltrade/38893266.pdfhttp://dx.doi.org/10.1787/soc_glance-2014-enhttp://businessculture.org/southern-europe/business-culture-in-croatia/http://businessculture.org/southern-europe/business-culture-in-croatia/http://www.imf.org/external/np/seminars/eng/2011/res2/pdf/crbs.pdfhttp://www.imf.org/external/np/seminars/eng/2011/res2/pdf/crbs.pdfhttps://en.wikipedia.org/wiki/Special:BookSources/9780387456676https://en.wikipedia.org/wiki/Special:BookSources/9780387456676http://money.cnn.com/2013/04/04/news/economy/bank-of-japan-decision/index.htmlhttp://money.cnn.com/2013/04/04/news/economy/bank-of-japan-decision/index.htmlhttp://www.emergingmarkets.org/Article/3201402/Japan-capital-outflowsgoing-to-US-Europe-Kuroda.htmlhttp://www.emergingmarkets.org/Article/3201402/Japan-capital-outflowsgoing-to-US-Europe-Kuroda.htmlhttp://eml.berkeley.edu/~saez/saez-UStopincomes-2012.pdfhttp://eml.berkeley.edu/~saez/saez-UStopincomes-2012.pdfhttp://news.thomasnet.com/IMT/2013/03/14/china-widens-lead-as-worlds-largest-manufacturerhttp://news.thomasnet.com/IMT/2013/03/14/china-widens-lead-as-worlds-largest-manufacturerhttp://www.stat.go.jp/english/data/handbook/c0117.htm#c02http://www.frbsf.org/economic-research/publications/economic-letter/2006/october/did-quantitative-easing-by-the-bank-of-japan-work/http://www.frbsf.org/economic-research/publications/economic-letter/2006/october/did-quantitative-easing-by-the-bank-of-japan-work/http://www.saudiembassy.net/about/country-information/energy/OPEC.aspxhttp://www.saudiembassy.net/about/country-information/energy/OPEC.aspxhttp://books.sipri.org/product_info?c_product_id=476http://books.sipri.org/product_info?c_product_id=476Page 45 of 46 Saudi Arabia Unemployment Rate. Trading Economics. (2015). Retrieved October 14, 2015 from http://www.tradingeconomics.com/saudi-arabia/unemployment-rate Santander. (n.d.). Saudi Arabia: Foreign investment. Retrieved October 16, 2015 from https://en.santandertrade.com/establish-overseas/saudi-arabia/foreign-investment The United States of Entrepreneurs. (2009). The Economist. Retrieved from http://www.economist.com/node/13216037 " This is Norway (Articles and publications). Retrived 14 October, 2015 from http://www.ssb.no/en/befolkning/artikler-og-publikasjoner/this-is-norway/ Trading Economics. (2015). Norway GDP Growth Rate. 1947-2015|Data|Chart|Calendar. Retrieved 10 October, 2015 from http://www.tradingeconomics.com/norway/gdp-growth Trading Economics. (2015). Japan | Credit Rating. Retrieved from http://www.tradingeconomics.com/japan/rating Taborda, J. Trading Economics. (2015, September 25). United States GDP Growth Rate. Retrieved from http://www.tradingeconomics.com/united-states/gdp-growth The BRIC Countries: Brazil, Russia, India, China. The BRIC Countries: Brazil, Russia, India, China (June 2010). ECONOMYWATCH, Retrived from http://www.economywatch.com/international-organizations/bric.html The World Bank. (2015). GDP (Current $). Retrieved 15 October 2015 from http://data.worldbank.org/indicator/NY.GDP.MKTP.CD Turkey Overview. (Oct. 2015). World Bank. Retrived form http://www.worldbank.org/en/country/turkey/overview Tankersley, J. (December 16, 2014). A Black Hole for Our Best and Brightest. Retrieved December 23, 2014 from http://www.washingtonpost.com/sf/business/2014/12/16/a-black-hole-for-our-best-and-brightest/ Tidey, A. (2014). Is now really the best time to invest in Nigeria? Retrieved October 14, 2015 from http://www.cnbc.com/2014/05/20/is-now-really-the-best-time-to-invest-in-nigeria.html Thomson Reuters (Mar. 2015) China Urges Banks to Speed up Agriculture Sector Loans. Retrived form http://www.reuters.com/article/2015/03/03/china-agriculture-idUSL4N0W53ZK20150303 The World Bank. (2015). Retrieved October 16, 2015 from http://search.worldbank.org/all?qterm=croatia+gdp&title=&filetype= The Economist.(2014). Africas New Number One. Retrieved October 14, 2015 from http://www.economist.com/news/leaders/21600685-nigerias-suddenly-supersized-economy-indeed-wonder-so-are-its-still-huge?frsc=dg%7Ca United Nations Development Programme. (2014). pp. 2125. Retrieved 13 October, 2014 from http://hdr.undp.org/sites/default/files/hdr14-summary-en.pdf http://www.tradingeconomics.com/saudi-arabia/unemployment-ratehttp://www.tradingeconomics.com/saudi-arabia/unemployment-ratehttps://en.santandertrade.com/establish-overseas/saudi-arabia/foreign-investmenthttps://en.santandertrade.com/establish-overseas/saudi-arabia/foreign-investmenthttp://www.economist.com/node/13216037http://www.economist.com/node/13216037http://www.ssb.no/en/befolkning/artikler-og-publikasjoner/this-is-norway/http://www.ssb.no/en/befolkning/artikler-og-publikasjoner/this-is-norway/http://www.tradingeconomics.com/norway/gdp-growthhttp://www.tradingeconomics.com/japan/ratinghttp://www.tradingeconomics.com/japan/ratinghttp://www.tradingeconomics.com/united-states/gdp-growthhttp://www.economywatch.com/international-organizations/bric.htmlhttp://www.economywatch.com/international-organizations/bric.htmlhttp://data.worldbank.org/indicator/NY.GDP.MKTP.CDhttp://data.worldbank.org/indicator/NY.GDP.MKTP.CDhttp://www.worldbank.org/en/country/turkey/overviewhttp://www.worldbank.org/en/country/turkey/overviewhttp://www.washingtonpost.com/sf/business/2014/12/16/a-black-hole-for-our-best-and-brightest/http://www.washingtonpost.com/sf/business/2014/12/16/a-black-hole-for-our-best-and-brightest/http://www.cnbc.com/2014/05/20/is-now-really-the-best-time-to-invest-in-nigeria.htmlhttp://www.cnbc.com/2014/05/20/is-now-really-the-best-time-to-invest-in-nigeria.htmlhttp://www.reuters.com/article/2015/03/03/china-agriculture-idUSL4N0W53ZK20150303http://www.reuters.com/article/2015/03/03/china-agriculture-idUSL4N0W53ZK20150303http://search.worldbank.org/all?qterm=croatia+gdp&title=&filetype=http://search.worldbank.org/all?qterm=croatia+gdp&title=&filetype=http://www.economist.com/news/leaders/21600685-nigerias-suddenly-supersized-economy-indeed-wonder-so-are-its-still-huge?frsc=dg%7Cahttp://www.economist.com/news/leaders/21600685-nigerias-suddenly-supersized-economy-indeed-wonder-so-are-its-still-huge?frsc=dg%7Cahttp://hdr.undp.org/sites/default/files/hdr14-summary-en.pdfhttp://hdr.undp.org/sites/default/files/hdr14-summary-en.pdfPage 46 of 46 United States Net Treasury International Capital Flows | 1978-2015 | Data (United States Net Treasury International Capital Flows | 1978-2015 | Data) from http://www.tradingeconomics.com/united-states/capital-flows Ujikane, K.(2015). Japan Rating cut by S&P as Abe Falls Short of Early Promise. The bloomberg business. Retrived from http://www.bloomberg.com/news/articles/2015-09-16/japan-s-rating-cut-by-s-p-as-abe-falls-short-of-early-promise UNDP. (2014). EU-funded tourism projects seen as growth engine for Croatias less developed areas. Retrieved October 14, 2015 from http://www.hr.undp.org/content/croatia/en/home/presscenter/articles/2014/03/07/eu-funded-tourism-projects-seen-as-growth-engine-for-croatia-s-less-developed-areas.html World Business Culture. (n.d.). Doing Business in Nigeria. Retrieved October 14, 2015 from http://www.worldbusinessculture.com/Business-in-Nigeria.html WHO: Life Expectancy in Israel Among Highest in the World. (2009, May 24). HAARETZ. Retrieved from Http://www.haaretz.com/news/who-life-expectancy-in-israel-among-highest-in-the-world-1.276618. Warnock, E. and Obe,M.(Feb, 2015). Japan Escapes Recession But Growth Misses Forecasts, The Wall Street Journal, Retrived from http://www.wsj.com/articles/japan-q4-gdp-worse-than-expected-at-22-1424044641 Warnock, E. & Obe, M. (2015). Japans Economy Shrinks in Second Quarter. Retrieved October 16, 2015 from http://www.wsj.com/articles/japans-economy-shrinks-annualized-1-6-in-second-quarter-1439769883 Wessel, D. (August 8, 2012). When Interest Rates Turn Upside Down. Retrieved October 11, 2015 from http://www.wsj.com/articles/SB10000872396390444900304577577192417116440 WFE - YTD Monthly (n.d.). Web.archive.org. November 6, 2011. Archived from the original on November 6, 2011. Retrieved June 8, 2014. from https://web.archive.org/web/20111106005313/http://www.world-exchanges.org/statistics/ytd-monthly Whitman, E.( Feb 12, 2015). Gulf Countries Migrant Workers: Health Care Providers Are Mostly Foreigners In Saudi Arabia And Neighboring Countries. International Business Times Retrived form http://www.ibtimes.com/gulf-countries-migrant-workers-health-care-providers-are-mostly-foreigners-saudi-1814550 Winship, S. (2013). Over stating the Cost of Inequality. National Affairs. Retrieved October 11, 2015 from http://www.brookings.edu/~/media/research/files/articles/2013/03/overstating%20inequality%20costs%20winship/overstating%20inequality%20costs%20winship.pdf 5-Year Treasury Inflation-Indexed Security, Constant Maturity. (n.d.). Retrieved 15th Oct from https://research.stlouisfed.org/fred2/series/DFII5 OICA.(2013). 2013 Production Statistics - First 6 Months. Retrieved 16 October 2013. from http://www.oica.net/category/production-statistics/ http://www.tradingeconomics.com/united-states/capital-flowshttp://www.bloomberg.com/news/articles/2015-09-16/japan-s-rating-cut-by-s-p-as-abe-falls-short-of-early-promisehttp://www.bloomberg.com/news/articles/2015-09-16/japan-s-rating-cut-by-s-p-as-abe-falls-short-of-early-promisehttp://www.hr.undp.org/content/croatia/en/home/presscenter/articles/2014/03/07/eu-funded-tourism-projects-seen-as-growth-engine-for-croatia-s-less-developed-areas.htmlhttp://www.hr.undp.org/content/croatia/en/home/presscenter/articles/2014/03/07/eu-funded-tourism-projects-seen-as-growth-engine-for-croatia-s-less-developed-areas.htmlhttp://www.hr.undp.org/content/croatia/en/home/presscenter/articles/2014/03/07/eu-funded-tourism-projects-seen-as-growth-engine-for-croatia-s-less-developed-areas.htmlhttp://www.worldbusinessculture.com/Business-in-Nigeria.htmlhttp://www.haaretz.com/news/who-life-expectancy-in-israel-among-highest-in-the-world-1.276618http://www.haaretz.com/news/who-life-expectancy-in-israel-among-highest-in-the-world-1.276618http://www.wsj.com/articles/japan-q4-gdp-worse-than-expected-at-22-1424044641http://www.wsj.com/articles/japan-q4-gdp-worse-than-expected-at-22-1424044641http://www.wsj.com/articles/japans-economy-shrinks-annualized-1-6-in-second-quarter-1439769883http://www.wsj.com/articles/japans-economy-shrinks-annualized-1-6-in-second-quarter-1439769883http://www.wsj.com/articles/SB10000872396390444900304577577192417116440https://web.archive.org/web/20111106005313/http:/www.world-exchanges.org/statistics/ytd-monthlyhttp://www.world-exchanges.org/statistics/ytd-monthlyhttps://web.archive.org/web/20111106005313/http:/www.world-exchanges.org/statistics/ytd-monthlyhttps://web.archive.org/web/20111106005313/http:/www.world-exchanges.org/statistics/ytd-monthlyhttps://web.archive.org/web/20111106005313/http:/www.world-exchanges.org/statistics/ytd-monthlyhttp://www.ibtimes.com/gulf-countries-migrant-workers-health-care-providers-are-mostly-foreigners-saudi-1814550http://www.ibtimes.com/gulf-countries-migrant-workers-health-care-providers-are-mostly-foreigners-saudi-1814550http://www.brookings.edu/~/media/research/files/articles/2013/03/overstating%20inequality%20costs%20winship/overstating%20inequality%20costs%20winship.pdfhttp://www.brookings.edu/~/media/research/files/articles/2013/03/overstating%20inequality%20costs%20winship/overstating%20inequality%20costs%20winship.pdfhttp://www.brookings.edu/~/media/research/files/articles/2013/03/overstating%20inequality%20costs%20winship/overstating%20inequality%20costs%20winship.pdfhttps://research.stlouisfed.org/fred2/series/DFII5https://research.stlouisfed.org/fred2/series/DFII5http://www.oica.net/category/production-statistics/http://www.oica.net/category/production-statistics/