> **来源：[研报客](https://pc.yanbaoke.cn)** # Frontier Market Economies Promise, Performance, and Prospects Tommy Chrimes, Philip Kenworthy, Jiwon Lee, Kate McKinnon, Takuma Tanaka, and Hamza Zahid # Frontier Market Economies Promise, Performance, and Prospects The text of this advance edition is part of the report Global Economic Prospects, January 2026 (doi: 10.1596/978-1-4648-2267-4). A PDF of the final book is available at https://openknowledge.worldbank.org/ and http://documents.worldbank.org/, and print copies can be ordered at www.amazon.com. Please use the final version of the report for citation, reproduction, and adaptation purposes. © 2026 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org # Some rights reserved This work is a product of the staff of The World Bank with external contributions. 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The cutoff date for the data used in the report was December 16, 2025. # Contents # Acknowledgments # About the Authors vii # Executive Summary 1 Introduction 3 Contributions 4 Main findings 7 Characteristics of frontier markets 9 Share of global population 10 Global economic footprint. 10 Financial integration and financial development 11 Composition and volatility of capital inflows 11 Limited financial market development 16 Integration with the global financial cycle 17 Fiscal positions, debt, and institutional quality 23 Fiscal positions and debt 23 Institutional quality 24 Macroeconomic and development outcomes 25 Headline macroeconomic performance 25 Convergence and poverty reduction 26 Physical capital accumulation and human development 27 Sectoral composition of output and employment 27 Features of frontier market success 28 Features of faster-growing frontier markets 28 Lessons from case studies of faster-growing frontier markets 29 Policy priorities for frontier markets 31 Advancing financial and trade integration while managing external vulnerabilities 31 Bolstering macroeconomic stability 34 Catalyzing productivity growth through structural reforms 36 Support for frontier markets from the international community 39 # References. 57 Boxes 4.1 Financial market classifications of frontier market economies.. 5 4.2 Incidence and drivers of surges and stops in capital inflows 13 4.3 The global financial cycle: Asset prices and credit growth 18 Annexes 4.1 Classification of economies 40 4.2 Frontier market case studies 44 4.3 Data and methodology for empirical exercises 54 # Figures ES Overview. 1 4.1 Basic characteristics of frontier markets 9 4.2 Frontier markets in the global economy 10 4.3 Financial and trade openness 11 4.4 Capital inflows 12 B4.2.1 Share of countries experiencing surges and stops in capital inflows 14 4.5 Financial development 17 B4.3.1 Frontier markets' exposure to the global financial cycle 19 B4.3.2 Variance decompositions of equity returns 21 B4.3.3 Variance decompositions of credit growth 22 4.6 Government and external debt 23 4.7 Economic structure and institutional quality 25 4.8 Economic growth, inflation, and volatility 26 4.9 Per capita GDP, convergence, and poverty rates 27 4.10 Physical capital stock and human development 28 4.11 Characteristics of faster-growing frontier markets 29 4.12 Growth during capital inflow surges and stops 32 4.13 External buffers and policy tools 33 4.14 Fiscal developments 35 4.15 Natural resources 38 A4.2.1 Kazakhstan: Economic performance 45 A4.2.2 Panama: Economic performance 47 A4.2.3 Rwanda: Economic performance 48 A4.2.4 Uzbekistan: Economic performance 51 A4.2.5 Viet Nam: Economic performance 52 # Tables A4.1.1 Classification of frontier markets, emerging markets, and other developing economies: 2012 baseline sample 41 A4.1.2 Classification of frontier markets, emerging markets, and other developing economies: 2025 sample 42 A4.1.3 Number of economies in each classification (as of 2012 and 2025) 43 A4.1.4 Classification changes between 2012 and 2025 43 A4.1.5 Top quartile analysis for combined 2012 and 2025 frontier market samples 43 A4.3.1 Drivers of surges and stops in capital inflows 56 A4.3.2 Drivers of surges and stops in capital inflows, excluding the Global Financial Crisis and COVID-19 periods 56 # Acknowledgments This World Bank Group Flagship Report is a product of the Prospects Group in the Development Economics (DEC) Vice Presidency. The project was managed by M. Ayhan Kose and Carlos Arteta, under the general guidance of Indermit Gill. This document is chapter 4 of the January 2026 Global Economic Prospects. The preparation of the analytical chapters was overseen by Dana Vorisek. The report was prepared by a team that included Marie Albert, Francisco Arroyo Marioli, Tommy Chrimes, Bram Gootjes, Phil Kenworthy, Gitanjali Kumar, Jiwon Lee, Emiliano Luttini, Joseph Mawejie, Kate McKinnon, Edoardo Palombo, Nikita Perevalov, Peter Selcuk, Shijie Shi, Naotaka Sugawara, Takuma Tanaka, Garima Vasishtha, Collette Wheeler, and Hamza Zahid. Additional contributions were provided by Mirco Balatti, Dawit Mekonnen, Alen Mulabdic, Kersten Stamm, and Neha Varma. Main research assistance was provided by Sergiu Dinu, Jiayue Fan, Mario Guillen Salvatore, Maria Hazel Macadangdang, Rafaela Martinho Henriques, Shiqing Hua, Vasiliki Papagianni, Juan Felipe Serrano Ariza, Kaltrina Temaj, Chao Wang, and Canran Zheng. Additional research assistance was provided by Giovanni Biasiucci, Nikita Makarenko, and Sadhna Naik. Modeling and data work was provided by Shijie Shi. Adriana Maximiliano handled design and production. Graeme Littler produced the online prod ucts, with assistance from the Open Knowledge Repository, and provided editorial support, with contributions from Adriana Maximiliano and Michael Harrup. Joe Rebello managed communications and media outreach with a team that included Kristen Milhollin, Mariana Lozzi Teixeira, and Leslie Yun, with extensive support from the World Bank's media and digital communications teams. The production of this print edition was coordinated by Jaime Alvarez and Jason Barrett. Regional projections and write-ups were produced in coordination with country teams, country directors, and the offices of the regional chief economists. Many reviewers provided extensive advice and comments. The analysis also benefited from comments and suggestions by staff members from World Bank Group country teams and other World Bank Group Vice Presidencies as well as Executive Directors in their discussion of the report on December 11, 2025. However, both forecasts and analysis are those of the World Bank Group staff and should not be attributed to Executive Directors or their national authorities. # About the Authors Tommy Chrimes is a Senior Economist in the World Bank Group's Prospects Group. Previously, he served as an Advisor to the UK Executive Directors at the International Monetary Fund and World Bank Group. Before that, he worked for the UK civil service in various international economics and policy roles. Philip Kenworthy is a Senior Economist in the World Bank Group's Prospects Group. Previously, he worked in various economics and policy roles within the UK civil service. He is a CFA® charterholder. Jiwon Lee is an Economist in the World Bank Group's Prospects Group. Prior to joining the World Bank, she held several policy and analytical roles at the Bank of Korea. Kate McKinnon is an Economist in the World Bank Group's Prospects Group. Previously, she worked at Vanguard in the Investment Strategy Group and at the United Nations Capital Development Fund. Takuma Tanaka is a Senior Economist in the World Bank Group's Prospects Group. Previously, he worked for the Japanese civil service in several economic policy roles, including at the Ministry of Finance and the Financial Services Agency. Hamza Zahid is an Economist in the World Bank Group's Prospects Group. Prior to joining the World Bank, he completed his PhD in economics. # Executive Summary Frontier market economies are a diverse group characterized by limited but meaningful access to international financial markets: greater than most developing economies but less than emerging markets. Today's frontier markets already account for more than one-fifth of the global population, and over the next 25 years, they are projected to add more to the global population than the rest of the world combined, yet they currently account for about 5 percent of global output (refer to figure E.S.A). Frontier markets will therefore be pivotal to the global job creation agenda. Their access to financial markets also means they will be key to global private capital mobilization efforts. Growing populations and access to global financial markets are building blocks of frontier markets' economic potential. Although frontier markets lag behind emerging markets on other development indicators, they also have advantages over other developing economies: they generally have larger physical capital stocks and better human capital. Many frontier markets also hold important natural resource endowments, including of minerals that will be important to new technologies and the energy transition. Yet despite their considerable economic potential, as a group, frontier markets' economic and development progress over the past quarter century has been modest. Real GDP per capita in the median frontier market is now less than one-third of that in the typical emerging market—a wider gap than in 2000. In the five-year period from the onset of the pandemic, high-income status moved further away for about 40 percent of frontier markets (refer to figure ES.B). On a per capita basis, average annual investment growth has fallen from over 5 percent in the 2000s to 2 percent in the early 2020s (refer to figure ES.C). Poverty rates in frontier markets have more than halved since 2000, but remain about five times those in emerging markets, and progress has slowed in the past decade. Life expectancy has risen, as have other human development indicators, such as education levels. Inclusion in major international equity and bond indexes should attract investment and can # FIGURE ES Overview Frontier markets' share of the global population is rising, but their share of global GDP remains low. High-income status has moved further from reach for a growing share of frontier markets in recent years. Growth of per capita investment has slowed in frontier markets, even as these economies have become more financially open. In both emerging and frontier markets, capital inflow surges have been associated with strong output growth, although surges are often followed by stops. Amid external and fiscal pressures, the number of frontier market sovereign default events has risen in recent years. A. Shares of global population and GDP B. Share of frontier markets not converging to high-income threshold C. Annual growth of per capita investment D. De jure financial openness E. GDP growth around capital inflow episodes F. 2000-24 sovereign default events Sources: Chinn and Ito (2006); Haver Analytics; Kose et al. (2022); Organisation for Economic Co-operation and Development; UN Population Prospects (database); WDI (database); World Bank. Note: EM = emerging markets; FM = frontier markets; ODE = other developing economies, neither EM nor FM. Unless otherwise stated, bars show country group medians for the 2012 baseline sample. A. Sample includes 37 EMs, 56 FMs, and 57 ODEs, by 2025 classifications. B. Bars show the share of the 39 FMs in the baseline 2012 sample not converging to high-income status over each period. An economy is converging if the ratio of its per capita income to the World Bank Group's annual high-income threshold is rising. C. Sample includes 30 EMs, 34 FMs, and 42 ODEs. Bars represent period averages of median values in each group. D. Financial openness is proxied by the Chinn-Ito Index, which measures capital account openness using the first principal component of variables on regulatory controls over current or capital account transactions, with 1 (normalized) indicating the most open. Balanced sample of 34 EMs, 37 FMs, and 69 ODEs. E. Surges and stops are identified via the algorithm detailed in annex 4.3. GDP growth is measured as seasonally adjusted annualized rates based on real quarterly GDP data in local currency. Sample includes 24 EMs and 27 FMs. F. Data cover sovereign defaults and restructurings with private creditors that occurred between 2000 and 2024 as documented in Asonuma and Trebesch (2016), Erce, Mallucci, and Picarelli (2022), Fitch Ratings (2025), Moody's Ratings (2025), and S&P Global (2025). also incentivize sound policies. Frontier markets' share of global capital flows increased in the early part of the quarter century. Their openness to capital flows has risen but remains below that of emerging markets (refer to figure ES.D). Output growth in frontier markets has tended to rise substantially around capital inflow surges (refer to figure ES.E). Stops in capital flows—which often follow surge episodes—are often associated with a slowdown in output growth. However, frontier markets' financial development and integration into the global economy remain partial, leaving opportunities unrealized as well as some notable vulnerabilities. Relatively underdeveloped and shallow domestic financial markets, with wider bank lending-deposit rate spreads than in emerging markets, as well as institutional and governance weaknesses, constrain their ability to productively use investment, and growth in capital stock per capita has been disappointing. Thin policy buffers (for example, in terms of fiscal headroom and foreign exchange reserves) and credibility gaps in governance and policy frameworks increase uncertainty for firms and investors, raise external financing costs, and amplify the adverse effects of shocks. The nature of frontier markets' external exposures is unfavorable relative to emerging markets. Portfolio flows tend to be more volatile; export baskets are more concentrated; and more debt is denominated in foreign currencies, alongside lower reserves cover. Fiscal pressures have also risen. In recent years, there have been more sovereign defaults in frontier markets than in all other countries combined (refer to figure ES.F). Some frontier markets have achieved more rapid economic progress than others; although routes to success have varied, some common themes emerge from their experiences. The frontier markets that recorded the fastest average growth in GDP per capita over the last quarter century also recorded strong increases in capital stock per person relative to other frontier markets. They also improved governance, and they reduced banks' lending costs. In addition, these faster- growing frontier markets were more effective in containing growth in government debt. These top-performing frontier markets are a diverse group that have adopted different development approaches: from encouraging investment into the energy sector (Kazakhstan), to pursuing value-added manufacturing (Viet Nam), to focusing on services- and tourism-driven growth (Rwanda): all sectors among those identified by the World Bank Group as having strong job creation potential. Many faster-growing frontier markets (such as Panama, for example) have made large infrastructure investments. Four economies (Bulgaria, Costa Rica, Panama, and Romania) reached high-income status and therefore graduated from frontier market status to emerging market classification between 2012 and 2025. Policy makers in frontier markets should strive to leverage the benefits of financial market access effectively and foster job creation to capitalize on growing populations. They should look to advance financial and trade integration while mitigating associated risks, furthering integration while improving oversight capacity, developing local financial markets, and enhancing policy buffers and resilience. They must bolster macroeconomic stability and credibility, creating an enabling environment for business, investment, and effective financial integration. Policy makers should also seek to catalyze investment and productivity growth. Taking full advantage of growing populations and access to international finance requires investment in foundational infrastructure and human capital. Structural reforms are needed to help generate high-return investment opportunities and lay the groundwork for sustained productivity growth and job creation. Given frontier markets' heterogeneity, more granular policy prescriptions must account for individual economies' particular advantages and vulnerabilities. The international community also has an important role to play in fostering an environment in which frontier markets can thrive. Frontier market economies are a subset of emerging market and developing economies that have meaningful but limited access to international financial markets. For global investors looking for returns beyond advanced economies, frontier markets represent a middle ground: they are less integrated into international financial markets than emerging markets but more integrated than other developing economies. These economies are home to 1.8 billion people today, about one-fifth of the world's total, and are projected to account for a larger share of global population growth than the rest of the world combined over the next 25 years. With some 230 million young people expected to reach working age by 2035 in frontier markets, they will play a critical role in addressing the jobs challenge facing developing economies. Many frontier markets possess valuable natural resources, and their populations are, on average, better educated and longer-lived than those in other developing economies. Growing working-age populations could create a sizeable demographic dividend—provided that sufficient jobs can be generated. Together with progress in international financial integration, these strengths point to considerable potential for rapid growth, job creation, and development. Yet although growth in some frontier markets has been relatively strong in the past quarter century, the group as a whole has not fully realized its potential. Progress in financial integration has brought benefits but remains partial, and these economies have also experienced greater vulnerability to sudden stops in capital flows and an increased incidence of sovereign defaults. There is no single path to success, but frontier markets that have recorded stronger growth over the last quarter century share some key features, including faster investment growth, improved institutions, and more contained government debt. Advancing financial development, alongside policies to bolster macroeconomic stability and catalyze investment, productivity, and job creation, can help frontier markets harness the gains from global financial integration while mitigating associated risks. Realizing frontier markets' potential is essential not only for these economies, but also for global job creation and development progress. # Introduction Frontier market economies (hereafter simply "frontier markets") are a diverse subgroup of emerging market and developing economies (EMDEs) characterized by their intermediate position in terms of international financial integration. They have gained some access to international financial markets—less than emerging market economies, but more than other developing economies—and are sometimes referred to as "pre-emerging" (refer to box 4.1). This chapter identifies frontier markets primarily by their inclusion in some widely tracked financial market indexes. Frontier markets are distinguished from emerging markets, which are part of higher-grade equity indexes or have high-income status. The chapter identifies 39 frontier markets as of 2012, and these provide the baseline sample for the analysis. Parts of the chapter also consider new entrants to the class, which had grown to 56 as of 2025.[2] Frontier markets have significant economic potential, in terms of demographics, natural resources, and gains from financial integration. Understanding the challenges and prospects of today's frontier markets is central to addressing the jobs challenge confronting EMDEs: these economies are home to roughly 1.8 billion people, over one-fifth of the world's population, but account for about 5 percent of global output. More than 230 million young people in today's frontier market economies are expected to reach working age between 2025 and 2035. Between 2025 and 2050, total and working-age populations in frontier markets are both projected to grow by more than those of the rest of the world combined. This represents a large demographic dividend, provided that working-age people can find productive jobs. People in frontier markets are better educated and live longer than in other developing economies. Many frontier markets also boast significant natural resources, including tourism potential as well as commodities crucial to new technologies and the energy transition. Inclusion in major financial market indexes can have significant consequences for EMDEs. A direct benefit is that index inclusion attracts capital into an economy's bonds and equities through a so-called "benchmark effect" (Raddatz, Schmukler, and Williams 2017). Given the large amount of assets benchmarked to prominent indexes relative to the size of many EMDE financial markets, these effects can be substantial. In bond markets, inclusion in global indexes can lower borrowing costs, improve market liquidity, and broaden the investor base. Equity market index inclusion can lower firms' cost of capital, stimulate increased investment and innovation, and improve risk-sharing, but may also generate relative losses for producers of tradables through currency appreciation. Indirect benefits of index inclusion and international financial integration can stem from the reforms that they incentivize—including strengthening the rule of law, enhancing financial regulation, and improving macroeconomic policy frameworks. Such reforms bring their own economic benefits, supporting long-term growth by promoting investment, improving allocative efficiency, and boosting total factor productivity (Adarov 2025; Kose et al. 2010). Although such benefits should themselves encourage reforms, index inclusion and deeper integration into global financial markets can provide additional incentives to advance effective reform efforts. Amid relatively easy global financial conditions, borrowing premia for many EMDEs have followed a declining trend since early 2023. Despite high geopolitical uncertainty over 2025, sovereign bond spreads at the start of January 2026 were lower than a year before in 90 percent of frontier markets; in 62 percent, they were also lower than on the eve of the pandemic in early 2020. This has prompted an uptick in frontier market bond issuance. However, in the past, such issuance has not consistently resulted in strong growth and development. There have been many studies on EMDEs and on various EMDE sub-groups, such as low-income countries (LICs) and economies in fragile and conflict-affected situations (FCS).<sup>4</sup> Yet frontier markets as a subgroup have tended to be overlooked in economic analyses. This chapter presents the first comprehensive analysis of economic developments and prospects in frontier markets. It addresses three main questions: - How have frontier markets performed in terms of macroeconomic and development outcomes, relative to emerging markets and other developing economies, since 2000? - In what ways do macro-financial conditions shape macroeconomic and development outcomes in frontier markets? - What policies can frontier markets pursue to raise growth and create jobs while containing vulnerabilities? # Contributions The chapter makes several contributions to the literature. Overview of frontier markets' characteristics and performance. The chapter provides an overarching # BOX 4.1 Financial market classifications of frontier market economies Financial market classifications of emerging market and developing economies (EMDEs), such as distinctions between emerging and frontier market economies, can lead to substantial capital inflows to upgraded economies by signaling progress in market reforms and institutional development. However, major financial market index compilers take different approaches to classification. There is no universally accepted definition of frontier or emerging markets. This box outlines a simple, transparent approach for identifying frontier and emerging market economies, based primarily on economies' inclusion in certain key financial market indexes (and also taking account of income levels). The resulting taxonomy provides the basis for this chapter's analysis of economies that are at early stages of integration into global capital markets. Across financial markets and international institutions, countries are often grouped—for example, by region, income levels, trade patterns, policy frameworks, or other specific characteristics. The World Bank Group has been influential in this nomenclature, and the term "frontier market" was coined in the early 1990s by the International Finance Corporation (IFC) and is now used widely across financial markets (IFC 2016).<sup>a</sup> Yet while there is a broad general understanding that frontier markets are "pre-emerging" economies with some degree of financial market access, there is no precise common definition. Different, if overlapping, approaches adopted by financial market index providers create definitional challenges for cross-cutting analysis. Categories, tiers, criteria, and processes differ between index providers, often with some qualitative element to assessment.<sup>b</sup> With the rapid expansion of index-based investing, inclusion or exclusion from emerging market or frontier market indexes can be consequential, both as a signal of market development and reform progress, and as a direct shaping force on capital flows. Robust analysis of frontier market prospects therefore requires an approach that captures the effects of inclusion in widely followed indexes, while drawing clear and transparent distinctions between emerging markets, frontier markets, and other developing economies. Against this backdrop, this box addresses the following questions: - How do financial markets categorize EMDEs for the purpose of index creation? - What is a simple and analytically robust definition of frontier markets to study their macroeconomic performance and prospects, including relative to other EMDEs? # Country classifications by financial markets Financial market classifications of EMDEs into frontier markets and emerging markets reflect index providers' assessments of factors deemed relevant to international portfolio investors. The specific parameters differ across providers, but major equity market indexes primarily consider a combination of market characteristics (the size, breadth, and liquidity of domestic equity markets) and market accessibility (regulations involving the ease of financial market transactions). In addition to quantitative criteria, qualitative judgments—such as assessments of institutional and regulatory frameworks—also play a role in determining index inclusion (Quisenberry and Griffith 2010). For more detail on the parameters used for index classifications, refer to annex 4.1. Conceptually, emerging markets are more advanced along the dimensions emphasized by index providers, # BOX 4.1 Financial market classifications of frontier market economies (continued) while frontier markets are at an earlier stage of financial development and integration. An economy may graduate from one index to another (for example, from a frontier market index to an emerging market index) if its markets deepen and become more accessible. EMDEs not included in either emerging or frontier market indexes—here called “other developing economies”—typically have a limited presence in global capital markets. These financial market classifications tend to broadly correlate with income levels: other developing economies are, on average, the poorest group, emerging markets the most affluent, and frontier markets occupy an intermediate position. However, exceptions exist where capital market development has outpaced income levels or, conversely, where higher-income economies remain less integrated into global capital markets, often because of limited market size. $^{d}$ # A simple, unified classification of frontier and emerging markets Drawing on the classifications of several prominent index providers, this box presents a simple and coherent categorization of frontier market economies, emerging market economies, and other developing economies. It incorporates the taxonomies of four major index providers and categorizes EMDEs as follows (refer to annex 4.1 for full lists of economies): - Economies included in at least one emerging or frontier market equity index are categorized as frontier market economies if they appear in more frontier than emerging market equity indexes, and as emerging market economies otherwise. Economies not included in an emerging or frontier market equity index but included in the J.P. Morgan Emerging Markets Bond Index (EMBI) Global are categorized as frontier market economies. - Any EMDE classified as a high-income country according to the World Bank Group is listed as an emerging market economy. - After applying the above rules, remaining EMDEs are categorized as other developing economies. This classification approach offers several advantages for the analysis in this chapter. First, by drawing clear distinctions among different groups of countries, it allows for clean and consistent cross-country comparisons. Second, the exclusion of high-income economies from both the frontier market and other developing economy groups enables a focused examination of how capital inflows can support growth from modest income levels. Third, the approach incorporates information from both equity and bond indexes, recognizing that different economic and market structures across EMDEs can channel capital flows through different instruments. Fourth, by drawing on indexes from four separate major index providers rather than a single index, the approach captures a broad view of market access. Indexes classifying EMDEs have grown and evolved over time. Some of the indexes used in this chapter did not exist in their current form in 2000. Accordingly, this chapter uses index membership and income levels in 2012 to form the baseline sample. This is roughly the midpoint of the quarter century covered in this chapter, and from thereon data for all four indexes are available. There were 39 frontier markets as of 2012 under the definition used here. By 2025, this number had risen to 56 economies. Many new entrants to the frontier market group between 2012 and 2025 achieved this status through inclusion in J.P. Morgan's EMBI Global bond index. Six economies were also added in 2016 following MSCI's decision to include the Western African Economic and Monetary Union (WAEMU) countries as frontier markets. For a full set of movements between EMDE groups, refer to annex 4.1. Economies identified as moving from frontier to emerging status between 2012 and 2025 have done so by reaching high-income status. Viet Nam's anticipated 2026 reclassification by FTSE Russell would buck this trend (LSEG 2025). The approach applied here, based primarily on financial market index providers' assessments, yields intuitive # BOX 4.1 Financial market classifications of frontier market economies (continued) patterns across various measures of economic development and financial integration. For example, per capita income in the median frontier market economy is less than one-third of that in the typical emerging market economy and more than double that of other developing economies. Similarly, portfolio liabilities—a measure of de facto financial openness—are negligible in other developing economies, about 7 percent of GDP in the median frontier market economy, and 33 percent of GDP in the typical emerging market economy. analysis of the characteristics of frontier market economies. It documents how they have evolved since 2000, in terms of macroeconomic, structural, and development metrics. The chapter puts these characteristics and developments in context by comparing them with those of emerging markets and other developing economies. It also considers the movement of countries between these groupings. Analysis of frontier markets' global financial integration. Despite their financial market access, there has been little analysis of frontier markets' exposure to global financial conditions. This chapter's analytical exercises address this gap. First, a study documents the exposure of frontier markets to surges and stops in capital inflows. Second, a dynamic factor model assesses the integration of frontier markets with the global financial cycle, highlighting vulnerabilities when global financial conditions tighten sharply. The chapter also examines the evolution and composition of debt in frontier markets. Assessment of frontier market success cases and identification of policy priorities. The chapter examines which frontier markets have had stronger economic growth over the past 25 years, and the macroeconomic, financial market, and structural features that have been associated with this success. Selected case studies also consider economic characteristics and policies that may have contributed to strong performance. Drawing on lessons from these cases, together with an assessment of the advantages and challenges facing today's frontier markets and insights from the econometric exercises, the chapter identifies policy priorities to drive better growth outcomes and development progress in these economies. # Main findings The chapter presents the following main findings: Despite the considerable economic potential of frontier markets, as a group, their progress in growth and development over the past quarter century has been modest. Half of frontier markets recorded slower per capita GDP growth than the EMDE average. Real GDP per capita in the median frontier market is now less than one-third of that in the typical emerging market—a wider gap than in 2000. In the five-year period from the onset of the pandemic, high-income status moved further away for about 40 percent of frontier markets. Growth of per capita investment has more than halved since the 2000s. Poverty rates in frontier markets have reduced by more than half this century, but remain at about five times those in emerging markets, and progress has slowed in the past decade. Life expectancy has risen, as have other human development indicators, such as education levels. These indicators have also risen in other EMDEs. Frontier markets' financial development and integration into the global economic and financial system remain partial—and modest in some respects—leaving opportunities and potential gains unrealized, as well as some notable vulnerabilities. Frontier markets' de jure financial openness has increased but remains below that of emerging markets. Meanwhile, the partial nature of frontier markets' financial development and international integration tends to heighten their vulnerabilities: - First, frontier markets have more limited capacity than emerging markets to translate financial inflows into productive investment, given their relatively weak absorptive capacity. This is reflected in relatively underdeveloped and shallow domestic financial markets, with wider lending-deposit rate spreads than in emerging markets, as well as institutional and governance weaknesses. Accordingly, growth in capital stock per capita has been disappointing. - Second, thin policy buffers (for example, in terms of fiscal flexibility and foreign exchange reserves) and credibility gaps in governance and policy frameworks in frontier markets increase uncertainty for firms and investors, raise external financing costs, and amplify the adverse effects of shocks. - Third, the nature of frontier markets' external exposures is unfavorable relative to emerging markets. Portfolio flows tend to be more volatile; export baskets are more concentrated; and more debt is denominated in foreign currencies, alongside lower reserves cover. These features generally increase balance-sheet risks. Output growth in frontier markets has tended to rise substantially around capital inflow surges. Stops in capital flows see a slowing of output growth (though this impact appears to be larger in emerging markets than in frontier markets). This suggests that financial integration is good for growth, even though stop events are more likely in the wake of a surge. In recent years, there have been more sovereign defaults in frontier markets than in all other countries combined. Some frontier markets have achieved more rapid economic progress than others; although routes to success have varied, some common themes emerge from their experiences. The frontier markets that recorded the fastest average growth in GDP per capita over the last quarter century recorded strong increases in capital stock per person relative to other frontier markets. They also improved governance, and their banks' lending-deposit spreads narrowed significantly. In addition, these faster-growing frontier markets were more effective in containing growth in government debt and debt-service burdens. These top-performing frontier markets are a diverse group that have adopted different development approaches: from encouraging investment into energy and commodities sectors (Kazakhstan), to pursuing value-added manufacturing and exports (Viet Nam), to focusing on services- and tourism-driven growth (Rwanda). Four economies (Bulgaria, Costa Rica, Panama, and Romania) reached high-income status and therefore graduated from frontier market status to emerging market classification between 2012 and 2025. Policy makers in frontier markets should strive to leverage the benefits of financial market access and growing populations effectively, including by: - Advancing financial and trade integration while mitigating associated risks. Furthering integration while improving oversight capacity, developing local financial markets, and enhancing policy buffers can help harness international investment, while expanding and diversifying exports can support resilience and development objectives. - Bolstering macroeconomic stability. Macroeconomic stability and credibility strengthen the underpinnings of financial integration, including by reducing the risk premia sought by investors, and are important components of economic progress more broadly. Sound monetary and fiscal policies to cement price stability and fiscal sustainability are key for frontier markets' future prospects (as in other EMDEs). - Catalyzing investment, productivity growth, and job creation. Taking full advantage of access to international finance requires investment in infrastructure and human capital. Structural reforms are needed to help generate high-return investment opportunities and set the stage for sustained productivity growth and job creation. Effective physical and digital infrastructure can lay the foundations for accelerating private investment, and better human capital can help ensure that growing working-age populations secure productive jobs. Enhancing governance and the business environment can also support these objectives. These are priorities across many EMDEs, but they are particularly important to enable frontier markets to capitalize on their demographic and resource endowments. Given the heterogeneity of frontier markets, policy design must account for individual economies' particular advantages and vulnerabilities; this will shape the relative importance of these themes. Inclusion in major global financial market indexes is not a magic bullet, but it can incentivize reform and attract investment, thereby helping to sustainably boost job creation and living standards. The international community has an important role to play in fostering an environment in which these economies can thrive. With potential growth slowing elsewhere and working-age populations plateauing or declining in many advanced and emerging market economies, frontier markets will play a growing role in shaping global economic and development outcomes. The extent to which they can convert financial integration into sustained output growth and job creation will be critical. # Characteristics of frontier markets The baseline set of frontier markets in this chapter—those that met the criteria in 2012, midway through the period under analysis—comprises 39 economies that are diverse in their geographies and economic structures. Frontier markets are found in all six EMDE regions, with the largest numbers in Sub-Saharan Africa and the Latin America and the Caribbean region (refer to figure 4.1.A). Six frontier markets are classified as small states, and four as FCS (refer to figure 4.1.B). Frontier markets are generally middle-income countries, although this masks significant dispersion in income per capita. About one-quarter of frontier markets are members of the International Development Association (IDA). Compared to other developing economies, frontier markets typically exhibit higher levels of market access and financial development. The median frontier market has more than double the physical capital stock per capita of the typical other developing economy. In addition, human capital—in terms of education and health metrics—is stronger in frontier markets than in other developing economies. Relative to emerging markets, however, important gaps persist across all of these areas. # FIGURE 4.1 Basic characteristics of frontier markets Frontier markets exist in all six EMDE regions. They are mostly middle-income countries. About half of frontier markets are commodity exporters, many specializing in energy exports. The population of frontier markets, about 1.8 billion today, is set to rise to 2.6 billion by 2050. Frontier markets' share of the global population is projected to rise substantially over 2025-50, unlike that of emerging markets. A. Frontier markets by region B. Frontier markets by country group C. Frontier markets by exporting status D. Population by today's EMDE groups Sources: UN Population Prospects (database); World Bank. Note: EAP = East Asia and Pacific; ECA = Europe and Central Asia; EM = emerging markets; FCS = fragile and conflict situations; FM = frontier markets; IDA = International Development Association; LAC = Latin America and the Caribbean; MNA = Middle East, North Africa, Afghanistan and Pakistan; ODE = other developing economies, neither EM nor FM; SAR = South Asia; SSA = Sub-Saharan Africa. A. Sample includes 39 FMs in baseline 2012 classification, and 56 FMs as of 2025 classifications. B.C. Sample includes 39 FMs, using baseline 2012 classification of economies based primarily on membership of key equity and bond market indexes. Income, FCS, IDA, and small states markers are based on 2025 World Bank Group classifications. Commodity exporters are economies where 2019 exports in the named area accounted for over 20 percent of total exports. D. Sample includes 37 EMs, 56 FMs, and 57 ODEs, as of 2025 classification status. Bars show total population in millions. Orange diamonds show the share of total population. About half of frontier markets have exports that are dominated by primary commodities, with the majority exporting industrial commodities, such as energy commodities and metals (refer to figure 4.1.C). Industrial activity in these economies is often substantially geared toward commodity extraction, and commodity revenues form an important part of tax bases. Relative to GDP, resource rents are especially large in frontier market energy exporters, although they are also sizeable in metal exporters—a pattern shared with other EMDE groups. Many frontier markets possess significant commodity endowments that # FIGURE 4.2 Frontier markets in the global economy The baseline sample of frontier markets accounted for about 5 percent of global GDP in 2025, up from less than 4 percent in 2000, but their contribution to global growth remains small. Frontier markets' exports as a share of the global total also remain small, especially relative to emerging markets. Although the share of global capital flows to frontier markets remains modest, it has almost quadrupled since the early 2000s. A. Shares of global GDP B. Shares of global GDP growth C. Shares of global exports D. Shares of global capital inflows Sources: IMF Balance of Payments and International Investment Position (database); WDI (database); World Bank. Note: EM = emerging markets; FM = frontier markets; ODE = other developing economies, neither EM nor FM. Sample includes 34 EMs, 39 FMs, and 80 ODEs, as of the 2012 baseline (the midpoint of the quarter century), unless otherwise specified. A.B. Panels show the share of global GDP and GDP growth respectively. GDP aggregates are calculated using real U.S. dollar GDP weights at average 2010-19 prices and market exchange rates. C. Panel shows exports of goods and services for each group of countries as share of total world exports during each average period. Sample includes up to 31 EMs, 38 FMs, and 66 ODEs. D. Stacked bars show total capital inflows per country group as a share of the global total. Based on an unbalanced sample, including up to 32 EMs, 39 FMs, and 74 ODEs. are globally relevant for new technologies and the energy transition. Solar energy potential is also generally high in frontier markets. However, their solar energy output remains quite modest. In addition, frontier markets often have significant natural capital that could support tourism. # Share of global population The population of frontier markets as a group is large and growing. About 1.8 billion people live in frontier markets in 2025—over one-fifth of the global population (refer to figure 4.1.D). More than 230 million young people in these economies will reach