A new World Bank study finds that frontier market economies—a group of mostly middle-income countries considered potential future economic leaders—have largely underperformed in recent decades. Investment growth per person in these economies during the 2020s has been less than half the rate seen in the 2010s, although some top-performing frontier markets provide lessons for the 56 economies currently in this category.
Frontier markets occupy a middle ground for global investors, being less integrated into global financial markets than emerging markets but more connected than other developing economies. The creation of the frontier and emerging market classifications in the 1980s and 1990s, supported by the World Bank Group’s International Finance Corporation, helped channel significant private investment into developing countries.
Despite advantages such as higher education, longer life expectancy, better policies and institutions, and natural resource wealth, most frontier markets have struggled to translate these strengths into economic advancement. According to the World Bank, they remain the developing world’s “lowest-hanging fruit” in terms of development potential.
Frontier markets are home to 1.8 billion people, a fifth of the world’s population, and are expected to add nearly 800 million more over the next 25 years, outpacing population growth elsewhere. Many are located in Sub-Saharan Africa and hold significant mineral resources crucial for renewable energy, telecommunications, and consumer electronics. They also attract investors because their stock markets have historically moved largely independently of global financial conditions.
The study highlights that frontier markets will play a key role in addressing the jobs challenge in developing countries, accounting for nearly a fifth of the 1.2 billion young people entering the workforce over the next decade. The most successful frontier economies have pursued growth-friendly policies, investment-supporting infrastructure, better fiscal management, and institutional frameworks that attract private investment, leading to substantial increases in per capita income.
However, most frontier markets have made limited progress in attracting investment since 2000. Investment per person has slowed to just 2% in the 2020s, and these economies now account for only 3.1% of global capital inflows and less than 5% of global economic output. Although financial-market openness has improved, domestic financial markets remain underdeveloped, with banks lending less to households and businesses than in emerging markets.
Fiscal challenges have further constrained growth. While government spending as a share of GDP has risen, revenues have remained stagnant, increasing debt burdens and defaults. Nearly 40% of frontier markets defaulted at least once between 2000 and 2024, and since the COVID-19 pandemic, they have experienced more defaults than all other countries combined.
Despite these challenges, some frontier markets have achieved remarkable progress. Viet Nam has become one of the world’s fastest-growing economies over the past 25 years, Rwanda has emerged as a major Sub-Saharan African success story, and Bulgaria, Costa Rica, Panama, and Romania have reached high-income status since 2012. Moving forward, frontier markets will need not only to open their economies but also to develop markets fully and strengthen institutional safeguards to realize their full potential.
