Featured in the Harvard Business Review

BACKGROUND

When investors look at a frontier economy, they should see not one market but four. We divide a frontier economy along two dimensions-whether the investment is for export or to serve the local economy; and whether firm profits are the consequence of innovation or differentiation (i.e., more "normal" business strategy) or whether they are economic rents, in turn determined through some discretionary regulatory or government-relations means and come up with four distinct "frontier markets."


Regulatory Rent Market Competition
Export-Oriented RENTIERS

Oil and gas, mining

MAGICIANS

Manufacturers, garments, services, tourism

Domestic Market POWERBROKERS

Power generation and distribution, ports, natural monopolies

WORKHORSES

Small-scale farmers, homebuilders, restaurants, retailers


Firms view competitors, suppliers, customers, communities, and policymakers in a completely different light depending which market they are operating in. The four different markets call for dramatically different strategies, both for the operation of business as well as demands on government.

These four markets do not exist in isolation from one another. The economy as a whole is shaped by the collective demands of businesses across the four markets on the state, which determines government policy and, ultimately, whether the economy grows or stagnates. To understand that, you'll need to map the four markets in the economy.

© 2016 Eric Werker and Aldo Musacchio | frontihellobotsereconom