What are 'Advanced Economies'

An advanced economy is a term used by the International Monetary Fund to describe developed countries. While there is no established numerical convention to determine whether an economy is advanced or not, advanced economies have a high level of gross domestic product per capita, as well as a very significant degree of industrialization.

BREAKING DOWN 'Advanced Economies'

Another metric commonly used to identify advanced economies is the Human Development Index, which combines multiple factors to measure a country's status. As of 2010 the IMF classified 34 nations as advanced economies. These include the United States and Canada in North America, most nations in Europe, Japan and the Asian tigers, as well as Australia and New Zealand.

How Advanced Economies Influence the Global Market

Advanced economies may adopt policies that can have a profound influence and impact on countries that have smaller, developing economies. For example, central banks in advanced economies could institute policy rate changes that may support their respective countries while putting others at a disadvantage. If a country with an advanced economy faces an economic downturn, it might take on stance to protect its own industries and goods over foreign-made products and services.

This could include changing interest rates in order to alter the value of the country’s currency, particularly in relation to foreign currency. New terms on trade arrangements might also be introduced to benefit domestic goods. Such actions could be detrimental to developing economies that have few alternatives for trade or limited means to negotiate with larger economies.

The health of advanced economies may have a cascading effect on other countries and the global market as a whole. This is due to the interrelated nature of advanced economies with each other and the developing economies that have trade and investment relations with them. If recessions or other sustained declines hamper the flow of investment by an advanced economy, it can put the growth of other countries at risk.

When past financial crises struck the United States, for example, other nations soon faced the fallout as overall economic stability was shaken. Advanced economies may form a foundation for a global economy, but when they stagnate they also tend to push comparable trends across the system. Developing economies, on the other hand, tend to have nominal effects on the international market.

Growth rates in developing economies might be more pronounced by comparison, particularly if a new industry is introduced that changes the fundamentals of the nation; however, the scale of that growth relative to advanced economies might still be small.

  1. Developed Economy

    A developed economy is one with sustained economic growth, security, ...
  2. New Economy

    New economy is a buzzword describing new, high-growth industries ...
  3. Economy

    An economy is the large set of interrelated economic production ...
  4. Old Economy

    Old economy is a term used to describe companies that enjoyed ...
  5. War Economy

    War economy is the organization of a country's production capacity ...
  6. Steady-State Economy

    A steady-state economy is an economy structured to allow economic ...
Related Articles
  1. Investing

    Which Countries Will Drive Global Growth in 2016?

    Given the volatility that has already shaken the global economy, the world's largest economies will be leaned on to stimulate growth in 2016
  2. Investing

    Why China Imports Matter to Global Economy

    The Chinese economy is a very important cog in the wheel of the global economy. If Chinese imports slow, the global economic threat is contagion.
  3. Insights

    What's the Economy?

    The economy is the production and consumption activities that determine how scarce resources are allocated in an area.
  4. Investing

    Understanding Capital And Financial Accounts In The Balance Of Payments

    The current, capital and financial accounts compose a nation's balance of payments, indicating the state of its economy and economic outlook.
  5. Insights

    How US Interest Rates Move the World Economy

    Because the US has the world's largest economy, fluctuations in America's interest rates affect much more than domestic growth
  6. Insights

    What is Fiscal Policy?

    Fiscal Policy how governments adjust taxes and spending to moderate the economy. Fiscal Policy is the sister strategy to monetary policy, through which a central bank influences a nation's money ...
  7. Investing

    What Was the Fastest Growing Developed Economy for 2016?

    In spite of the Brexit debacle, the U.K. was actually the fastest growing developed economy in 2016.
  8. Insights

    The World's Fastest Growing (and Shrinking) Economies

    The IMF cut its forecast for 2016 global economic growth Tuesday, estimating that GDP would expand at a rate of 3.2%, rather than the 3.4% forecast in January.
  9. Insights

    A Look At China's Growing Influence On The World

    With the second-largest economy in the world, China has significant (and growing) influence on the global economy. But how is that impact figured?
  10. Insights

    Could Third World Debt Relief Pay Off?

    Debt is as much a political tool as an economic one. Discover if wholesale debt forgiveness is the answer for developing countries.
  1. What is the difference between a command economy and a mixed economy?

    Learn about command and mixed economies, how the two economic systems function, and the main difference between a command ... Read Answer >>
  2. Globalization and International Investment

    Learn how globalization impacts international investment and transforms economies around the world. Understand the implications ... Read Answer >>
  3. What are some examples of economies of scale?

    Take a look at different examples of economies of scale, including how marginal costs can be reduced through external and ... Read Answer >>
  4. What economic indicators are most used when forecasting an exchange rate?

    Discover what economic indicators are most widely used to forecast a country’s exchange rate and how various factors influence ... Read Answer >>
  5. What are the advantages and disadvantages of a command economy?

    Learn about the basic tenets of a command economy and what its inherent advantages and disadvantages are versus a free market ... Read Answer >>
Trading Center