Market Integration
Market integration is a significant economic phenomenon, wherein different
regional or national markets become increasingly interconnected. This
process facilitates stronger economic ties and influences market dynamics
across borders.
Objectives of Market Integration
Students will be able to:
o Explain the role of financial institutions in the creation of a global
economy.
o Narrate the history of global market integration in the 20th
century.
o Identify attributes of global corporations.
o Differentiate European integration from ASEAN integration.
International Financial Institutions (IFIs)
International Financial Institutions are crucial in supporting economic and
social development, especially in developing countries. These organizations
play multiple roles, such as:
Providing financial support through loans and grants.
Offering technical assistance to governments and private businesses.
Regulating public utilities and managing natural resources.
Sharing a collective mission of poverty alleviation.
Being chartered by multiple countries with national governments as
key shareholders.
Examples of International Financial Institutions
World Bank (WB): Established in 1944, it serves to assist over 100
developing countries through loans, technical advice, and support on
various issues, including climate change and trade.
International Monetary Fund (IMF): Founded in 1945, it aims for
global monetary cooperation, financial stability, and poverty reduction
among its 189 member countries.
Asian Development Bank (ADB): Located in the Philippines, it
focuses on social and economic progress in Asian countries.
European Investment Bank (EIB), Islamic Development Bank
(IsDB), among others.
The World Bank
The World Bank operates with the mission of ending extreme poverty and
fostering shared prosperity by 2030. It comprises five entities:
1. International Bank for Reconstruction and Development (IBRD):
Provides loans to middle-income and creditworthy low-income
countries.
2. International Development Association (IDA): Issues interest-free
loans and grants to the world’s poorest nations.
3. International Finance Corporation (IFC): Focuses solely on the
private sector to enhance development through investments.
4. Multilateral Investment Guarantee Agency (MIGA): Promotes
foreign direct investment via political risk insurance.
5. International Centre for Settlement of Investment Disputes
(ICSID): Offers arbitration facilities for investment disputes.
International Monetary Fund (IMF)
The IMF works towards enhancing global financial stability and fostering
international trade. Key functions include:
Surveillance: Monitoring economic policies of member states.
Lending: Providing loans to support struggling economies.
Capacity Development: Offering technical assistance to member
countries.
Funding Sources
The IMF's resources come from member countries' quota payments, with the
capacity to borrow for supplemental funding.
Market Integration Explained
Market integration is characterized by:
The interplay of goods and services across regional markets,
demonstrating price fluctuations in unison.
Strategies from governments aimed at manipulating economic trends.
Examples of Market Integration
Integration can be illustrated through changes in demand affecting related
products:
Decrease in Demand: A drop in smartphone sales will likely affect
accessory sales such as cases and chargers.
Increase in Demand: A successful phone launch can lead to
heightened accessory sales as well.
Price Adjustments: Prices in both phone and accessory markets may
fluctuate in response to demand changes.
Production Adjustments: Manufacturers will alter production rates
based on consumer demands.
Types of Market Integration
Market integration can take various forms:
1. Preferential Agreement: Lower trade barriers between participating
countries through reduced tariffs.
2. Free Trade Agreement: Eliminates trade barriers entirely among
member nations.
3. Customs Union: Abolishes tariffs while facilitating free trade in goods.
4. Common Market: Enhances regional collaboration by allowing free
movement of labor and capital.
5. Economic Union: The highest level of integration, which includes
coordinated monetary and fiscal policies.
European Integration
The European Union (EU), formed post-World War II, exemplifies a unique
economic and political integration of European nations. Key components
include:
The evolution from the European Economic Community (EEC) to the
EU, enhancing economic collaboration.
Treaties Governing EU Operations: Key agreements include the
Treaty of Lisbon and the Treaty of Maastricht that guide EU functions
and objectives.
Advantages of EU Membership
Benefits include:
Peace and stability throughout Europe.
A common currency (the Euro) facilitating cross-border trade.
Promoting human rights and democratic values.
ASEAN Integration
Founded in 1967, ASEAN promotes political and economic cooperation
among Southeast Asian nations:
The ASEAN Economic Community (AEC) enhances regional market
connectivity, aiming for higher competitiveness and an integrated
economy.
The ASEAN Free Trade Area (AFTA) reduces tariffs among member
states to boost regional economic collaboration.
Key Principles of ASEAN Economic Community
Core pillars that support ASEAN’s growth include:
Single Market and Production Base
Competitive Economic Region
Equitable Economic Development
Integration with the Global Economy
Globalization and Outsourcing
Globalization shapes modern economies through outsourcing, enabling
companies to streamline operations by:
Establishing partnerships for bilateral investments across diverse
activities.
Producing goods by leveraging international resources efficiently.
Examples of Global Production
For instance, automotive production from the U.S. involves collaboration with
various countries for components and assembly, showcasing the global
supply chain.
Challenges for Global Corporations
Cultural diversity presents a significant challenge for corporations operating
globally. Harmonizing operations across varying cultural landscapes is
essential for success.
