How Emerging Economies Can Develop Successfully

Raising sufficient public revenue remains a challenge for most emerging economies. Governments often hesitate to enforce stronger tax policies, fearing they might drive away investors or harm key industries.

In an African country where gold exports generate significant income, no taxation of foreign mining firms has severely limited public investment in infrastructure, education, and healthcare. Instead of funding national development, most mining income goes abroad.

By contrast, countries enforcing clear and fair tax policies tend to create stronger economic foundations. Businesses are more likely to invest long-term when tax obligations and public spending are predictable.

Similarly, governments that maintain steady revenue can better plan infrastructure, public services, and workforce training. While tax incentives may attract investors in the short-term, excessive exemptions undermine government capacities and capabilities.

Leaders of many developing economies believe rising foreign direct investment (FDI) is a measure of success. It is undeniable that FDI provides capital, expertise, and access to international markets, especially where domestic financial resources are limited.

However, overreliance on foreign firms and their investments may involve long-term risks. Without policies to strengthen them, local businesses often struggle to survive, let alone thrive. Such dependence makes economies more vulnerable to external shocks, especially when global supply chains shift or multinational companies relocate.

A more sustainable approach would therefore ensure that foreign investment complements rather than displaces local businesses. This can be done through policies encouraging technology transfer, local procurement, skilled local hires, and fair tax contributions by international firms.

In East Asia, South Korea has built high-tech manufacturing and services sectors by strengthening domestic capacities and capabilities. China, meanwhile, has combined foreign expertise and technology transfers with infrastructure expansion, as well as long-term industrial planning and technological progress to secure roles in global supply chains.

A key lesson from these examples is that governments seeking such results must not only attract and retain skilled professionals, but also ensure that, over time, local enterprises can move up the value chain and become less dependent on outside capital, foreign expertise and imported technology.

Appropriate rather than excessive government involvement in emerging economies has long been debated. Some advocate minimal interference, while others, such as Mariana Mazzucato, point to successful state-led industrial policies.

A relevant reference is Singapore, which has strategically channeled resources into specific industries with clear performance benchmarks for companies receiving government support.

However, excessive state intervention may also carry risks. In some cases, close relationships between governments and large corporations, whether private or state-owned, may lead to preferential treatment that deters new firms.

There will be companies that continue to secure subsidies or policy advantages despite not improving productivity or making progress otherwise, which would eventually weaken long-term growth.

Governments must, therefore, balance intervention with accountability to effectively support economic growth. Policies should prioritize encouraging technological advancement and skills development while preventing monopolies and ensuring firm dynamism, cooperation, and contestation.

We are accustomed to seeing our leaders laud GDP growth increases, but long-term success means going beyond expansion to also prioritize structural transformation. In fact, development relies crucially on strong domestic resource mobilization to enhance capacities and capabilities.

Japan and China have demonstrated how sustained investment in research, education, and industrial policy leads to lasting economic benefits. Their experiences highlight the importance of prioritizing domestic industries and knowledge development over decades.

Countries that only focus on debt-financed infrastructure without broader development strategies often struggle to sustain growth. When infrastructure is not integrated with comprehensive, longer-term plan, its impact typically fades once initial funding dries up. Without effective governance, financial speculation could later expose government funds to leveraged risks during economic crises.

In short, nations that prioritize institutional reform, invest in human resources, and build resilient economies through coordinated planning will be far better positioned to compete in dynamic and challenging international landscape.

Despite their considerable differences, the experiences of Singapore, Japan, South Korea, and China reaffirm that only a strategic, long-term approach to economic development can lead to sustainable prosperity and better living standards for developing nations.