What is a Developed Market?

Developed markets are markets that are associated with nations that are considered to be developed. In order for a developed market to exist, the nations involved with the market must be considered to be somewhat stable in terms of economy and governmental structure. This does not mean that a nation must currently be undergoing a period of extreme prosperity and political unity, only that the current circumstances are highly unlikely to undermine the performance of the investment market to the point of causing long-term damage.

A developed market is typically one that has been long-established and shows promise for remaining stable in the years to come. This is in contrast to emerging markets or frontier markets that are beginning to develop but are not considered yet to be stable enough economically to be considered fully developed. Organizations such as the World Bank have established criteria for determining if a developed market exists in a given nation. Many countries also have created qualifications to help determine what is understood to be an acceptable level of development within an economy to merit this type of designation.

While there is some variance in the standards used to determine if a developed market exists, a few essentials are typically included in the criteria specified by many different nations and financial experts. One has to do with the presence of some sort of regulatory body that sets policies relating to investment trading within that nation. Typically, the actions of that regulatory body must be seen as protecting the rights of both buyers and sellers, allowing everyone participating in the marketplace to receive fair and equitable treatment under the laws of the land. In addition to the creation and maintenance of this type of balanced internal market, a developed market also promotes opportunities for investing in foreign exchange and similar markets, with regulations in place to protect the interests of all parties concerned.

A development market will also promote transaction costs that are reasonable and do not place an inordinate amount of burden on either buyers or sellers. This includes responsible management of tariffs and other types of taxes in a manner that encourages rather than discouraged trading. In many cases, this type of marketplace will also take steps to encourage an equitable trade balance that is considered to be in the best interests of the nation involved, often by providing incentives that encourage a certain amount of imports while also promoting exports to other countries.

It is important to note that a developed market does not mean that it is free from challenges that must be overcome in order to protect the economy. Political coups, recession, and a variety of other factors can combine to create severe trials that threaten the function of the marketplace. When events of this type do occur, it is not unusual for the market to suffer for a period of time, even as mechanisms already in place are implemented and the ill effects of the negative consequences are slowly but surely reversed over time.