The frontier economy of Cambodia

While developed countries see economies like Cambodia as new avenues for deeper economic integration, frontier economies may need to be aware of the vulnerability they share.

With the global economic landscape experiencing a long deflationary cycle in prices combined with declining productivity levels and a graduated stagnation in real wages, even large emerging market economies like Brazil, China, India have been experiencing a structural downturn for some time now. Double-digit growth in emerging markets has almost reached an impasse, which is pushing more countries and multinational companies to explore trade and market opportunities for investment in nations that are low on income but high on economic and political risk. We can refer to these as frontier economies.

Frontier economies are characterised by neo-patrimonial forms of political systems, representing fragile institutional capabilities due to weak land, labor laws, poor contract enforcement systems, and have relatively poor human-capital development levels. These include nations like Cambodia, Rwanda, Myanmar, Mozambique-to cite a few. Still, most of these economies are attractive destinations for ‘deeper’ market integration due to rich base of their natural endowments (minerals, metals, oil etc.), fertile agricultural terrain, cheap land costs, which allow many foreign companies to enjoy higher domestic gains, if they get there first.

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