Which emerging markets will climb the income ladder?

GDP growth in emerging markets is likely to continue outpacing developed markets in the coming years, partly due to higher population growth. By 2030, the combined population of the 10 largest emerging markets by GDP is projected to be nearly 3% larger than in 2023, accounting for nearly half of the global population. In contrast, over that same horizon, the population in the 10 largest developed markets is projected to grow 1%, with population size shrinking in several markets, including Japan and a few in Europe. 

Assuming population projections hold and labor force participation and productivity rates remain similar to the past decade's average, the combined GDP of the 10 largest emerging markets will approach that of the 10 largest developed markets.

However, under the same assumptions, GDP per capita in emerging markets will remain less than a third of that in developed markets by 2030, relatively unchanged from today. Even after adjusting for purchasing power parity to reflect cost of living differences, this number would be just over half of developed markets’ GDP per capita by 2030, compared with just under half currently. Therefore, to accelerate income per capita convergence², productivity growth must improve.

In a larger sample of emerging markets³, several have significantly progressed toward the income per capita levels of developed markets. GDP per capita in Saudi Arabia, Uruguay, Hungary and Poland exceeds 45% of that of G7 countries⁴, with all exceeding 55% after adjusting for purchasing power parity, reaching upper-middle-income status. Those upper-middle-income emerging markets have directly benefited from a combination of economic structural changes over the past two decades (greater global trade, uptick in commodity prices) and domestic reforms (trade and capital liberalization).

Despite the progress these emerging markets have made to climb the income ladder, the road to transitioning to developed market status is still long and not assured. 

The benchmark example of an emerging market transitioning to developed market status is South Korea in the late 1990s. South Korea benefited from favorable external conditions, such as global trade liberalization, and an ambitious and successful reform agenda, including economic and financial reforms. This included improving the country’s institutional framework and deepening its capital markets.  

To continue progressing in income per capita convergence, especially as population growth outpaces that in developed markets, upper-middle-income emerging markets will likely require a mix of favorable external conditions and productivity-boosting domestic reform. The challenge is that the global structural trends from which these upper-middle-income emerging markets have benefited are shifting — global trade is being undermined by protectionism and industrial policy, and most commodity prices are much lower than in the past. 

In frontier markets⁵, which are economies that typically have lower income levels and less developed capital markets than emerging markets, GDP per capita convergence with developed economies has been slower. The pace of frontier markets’ GDP per capita convergence with developed markets has been trending lower since 2018, except during the post-COVID-19 catch-up period in 2022.

Frontier markets’ economic performance remains vulnerable to adverse climate events, the volatility of a single commodity or service as the primary source of external liquidity, and rising public sector debt levels. In 2022–23, frontier markets with excessively high debt had limited access to global credit markets, contributing to a funding squeeze. Weaker currencies against the US dollar further increased external debt servicing costs, forcing countries such as Chad, Ghana, Zambia and Ethiopia to seek debt restructures under the G20 common framework. The funding squeeze coincided with a pivot in China’s Belt and Road Initiative, with reduced funding and a greater focus on specific investment projects related to critical minerals, green energy transformation and digitalization.

Structural changes, including low production costs and a relatively predictable business environment for foreign firms operating in Cambodia, as well as economic diversification in Côte d’Ivoire and Uganda, are expected to boost GDP per capita growth in these frontier market economies through 2030. Some frontier markets, such as Kazakhstan, will continue to benefit from the rerouting of trade to avoid sanctions on Russia in response to the Russia-Ukraine war.

To continue climbing the ladder, emerging markets, particularly those with high population growth, must sustain higher productivity rates than in developed markets. In frontier markets, especially in sub-Saharan Africa, where population growth is projected to be among the highest globally, failing to improve productivity could result in income per capita divergence (a widening of income level gaps with developed markets). The challenge is that productivity rates in most emerging markets have been falling over the past decade, faster than in developed markets. Emerging markets will need to reverse these rates to improve their income per capita convergence progress. 

Emerging markets that benefit from global structural trends such as energy transition and supply chain reconfigurations are better positioned to boost productivity. Indonesia, Chile and the Philippines, among others, are well-suited to supply metals and minerals required for the energy transition. Mexico, India and Vietnam are among the emerging markets that could benefit from supply chain relocation given their relatively mature manufacturing sectors and strategic trade ties with the US and other developed markets. 

However, appropriate institutional frameworks and necessary infrastructure will determine which emerging markets can bring these potential benefits to fruition. These include a regulatory backdrop that incentivizes investment and sufficient availability of resources such as competitively priced energy. Furthermore, emerging markets will face the rising mechanization of manufacturing production in developed markets, accelerated by AI, as well as trade protectionism in key sectors such as semiconductors and electric vehicle production (see Competing with the future: Creating supply chain competitive advantage to learn more). 

In emerging markets not directly exposed to those structural trends, domestic reforms will play a larger role in boosting productivity. These include measures to reduce corruption and insecurity, improve the institutional framework for investors, lessen regulatory burdens on the private sector and incentivize improvements in human capital.

The role of emerging markets in the global economy will continue to increase in the coming years as their share of global GDP rises. However, ensuring that economic expectations are met among their populations will facilitate the social stability and policy predictability that underpin emerging markets’ attractiveness as investment destinations. This will be key as emerging markets face developing global challenges, such as geopolitical fragmentation, climate change and supply chain reconfiguration, that will often require more investment. 

¹ The 10 largest emerging markets by nominal GDP as of 2023 are China, India, Brazil, Russia, Mexico, Indonesia, Türkiye, Saudi Arabia, Poland and Argentina. The 10 largest developed markets are the US, Germany, Japan, the UK, France, Italy, Canada, Australia, South Korea and Spain.

² In this article, income per capita follows the same definition as GDP per capita. Data on household income per capita is not widely available across emerging markets.

³ In this larger emerging market sample, we include the 10 largest markets — China, India, Brazil, Russia, Mexico, Indonesia, Türkiye, Saudi Arabia, Poland and Argentina — as well as Bulgaria, Chile, Colombia, Costa Rica, Egypt, Hungary, Malaysia, Nigeria, Panama, Peru, Philippines, Romania, South Africa, Thailand, Uruguay and Vietnam.

⁴ Group of 7 (G7) countries include Canada, France, Germany, Italy, Japan, the UK and the US.

⁵ The frontier markets sample used in this article includes Algeria, Angola, Bangladesh, Benin, Bolivia, Burundi, Cambodia, Cameroon, Côte d’Ivoire, Dominican Republic, Ecuador, El Salvador, Ethiopia, Ghana, Guatemala, Honduras, Jamaica, Kazakhstan, Kenya, Laos, Libya, Morocco, Mozambique, Namibia, Nicaragua, Pakistan, Paraguay, Republic of Congo, Senegal, Sri Lanka, Sudan, Tanzania, Trinidad and Tobago, Tunisia, Uganda, Zambia and Zimbabwe.