Developing Countries

A developing country is generally defined to a certain degree by its economic output. There has been much debate around where to draw the line between a developed and developing country, which is evident by the lack of a universal definition.

For example, the United Nations has conventions for distinguishing between developed and developing countries, and the World Bank has stopped using such terms in favor of low-income economy, lower-middle-income economy, and so on based on gross national income (GNJ) per capita. International investors often classify countries around the world based on their level of economic development. Several classification levels exist, and these use several economic and social criteria, ranging from per capita income and life expectancy to literacy rates. Developing countries, less- developed countries (LDCs), or emerging markets have lower ratings based on these statistical criteria.

 

Countries deemed more developed than LDCs are called developed countries, while those less developed are known as less economically developed countries (LEDCs) or frontier markets. These terms have been the subject of criticism, but they remain commonly used in many circles, including among international investors and international organizations. Benefits of Developing Countries: Investors like to use classification systems in order to simplify the investment process. While these investments aren't as safe as those in developed countries because of their volatility, they tend to have higher return rates over the long-term, simply because developing economies often grow at a faster rate than developed ones. This makes them an important component of an investor's portfolio, particularly if they have a long-term horizon. Another benefit of these emerging markets is diversification, which spreads out investment risk to limit exposure to any single asset. Emerging markets provide investors with diversification from both domestic and developed market equities that tend to account for most of a portfolio.

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