Lesson 2 : Market Integration
a. International Financial Institutions
b. Attributes of Global Corporation 1. Explain the role of international financial
institutions
2. Describe the global market integration
3. Identify the characteristics of global corporation
Intended Learning Outcomes
By the end of this topic/chapter, you must be able to:
Lesson 2: Market Integration
Market integration in a term that is used to identify a
phenomenon in which markets of goods and services
that are somehow related to one another being to
experience similar patterns of increase or decrease in
terms of the prices of those products. The term can also
refer to a situation in which the prices of related goods
and services sold in a defined geographical location also
begin to move in some sort of similar pattern to one
another. (Tatum, 2020 ) At times, the integration may
be intentional, with a government implementing certain strategies as a way to control the
direction of the economy. At other times, the integrating of the markets may be due to factor
such as shifts in supply and demand that have a spillover effect on several markets.
EFFECT of Integration on Market Development
1. Market integration provides opportunity to expand market coverage by selling
local products in the global market.
2. Market integration help to reduce market failure
3. Difference in the prices in integrated market should be equal if they are well
integrated.
A. International Financial Institutions
In the International Financial Institutions, with the Bretton Woods Agreement that
currencies were pegged to the price of gold and the US dollar was seen as a reserve currency
which linked to gold standard. Bretton Woods had its most powerful effects on global trade, the
global monetary order, and global investment (Peet, 2003).
According to the study of Mofatt, 2020 under the Bretton Woods System the central banks of
countries other than the United States were given the task of maintaining fixed exchange rates
between their currencies and dollar which they did this by intervening in foreign exchange
markets
In terms of global trade , a key was the idea of the “ unconditional most - favored
nation ” which “ required governments to offer the same trade concessions
[reductions in trade barriers, non- discrimination against a nation’s products] to
all” (Frieden 2006 : 288). Restrictions on international trade were reduced over
the years through various meetings (“ rounds” ) under the auspices of GATT
(General Agreement on Tariffs and Trade) and later the WTO.
In terms of the monetary order, it was the IMF that took center stage. The goal
was to provide security, as well as flexibility, to the monetary order. What
emerged between 1958 and 1971 was a system in which the US could not
change the value of its dollar, while all other countries could, but as infrequently
as possible. This made exchange rates stable enough to encourage international
trade and investment which otherwise would have been discouraged by dramatic
fluctuations in rates.
In terms of global investment , a key role was envisioned for the World Bank, but
massive US aid through the Marshall Plan, and rapid European post - war
recovery, made its work in that period of much less significance than had been
anticipated. A key development in terms of investment involved MNCs, especially
American based firms in fields like automobiles and computers, constructing their
own plants and/or investing in indigenous companies in other countries.
In many countries specially the welfare of the state global openness encourage
by Bretton Woods contributed to the emergence or expansion of social welfare program.
Welfare states sought to deal with various problems – recession, layoffs, reductions in
wages, and bankruptcies of uncompetitive firms. In the process, it gave a nation and its
entrepreneurs the cover they needed to be actively involved in the global marketplace.
Hence, to eliminate restrictions on
the use of currency for international trade,
the member states decided to come up with
an agreement known as the General
Agreement on Tariffs and Trade (GATT).
GATT focused on trade in goods, the WTO
also took on responsibility for the increasingly
important trade in services. While GATT was
simply a forum for the meeting of
representatives of countries, the WTO is an
independent organization.
Trade-Related Aspects of Intellectual Property Rights (TRIPS) (Correa 2000 )
was negotiated through the WTO, which involves intangible ideas, knowledge, and
expressions that require their use to be approved by their owner. Involved here is a wide
range of intellectual property, such as movies, GE 3: The Contemporary World 23
books, music recordings, and computer software, which exists, or whose value lies,
largely in the realm of ideas.
Trade- Related Investment Measures (TRIMs) “ are a range of operating or performance
measures that host- country governments impose on foreign firms to keep them from having a
distorting effect on trade in goods and services” (Grimwade 2007 : 1178).
World Trade Organization (WTO)
The WTO is a multilateral organization
headquartered in Geneva, Switzerland, with,
as of 2008, 152 member nations (Krueger
2000; Trachtman 2007: 1308– 1 5). Its focus
on trade places it at the heart of economic
globalization and has made it a magnet for
those opposed either to the broader process
of trade liberalization and promotion or to
some specific aspect of WTO operations.
While GATT focused on tariff reduction,
the WTO has come to focus more on non- tariff-
related barriers to trade.
International Monetary Fund (IMF)
The goal of the IMF is macroeconomic stability for both member nations and, more
generally, the global economy (Cardim de Carvalho 2007: 658– 6 3)
World Bank
The World Bank (officially the International Bank for Reconstruction and Development
[IBRD]), a specialized agency of the UN, is the most important element of the World Bank Group
(WBG) (Gilbert and Vines 2000 ; Bradlow 2007:1262 – 7). The IBRD was established in 1944 at
Bretton Woods and began operations in 1946. Membership is open to all member states of the
IMF and as of this writing it includes 184 nations. It provides funds to government- sponsored or
- guaranteed programs in so - called Part II countries (member states that are middle-income or
creditworthy poorer nations).
B. Attributes of Global Corporation
In the world of finance and investing, a global corporation is one that has significant
investments and facilities in multiple countries and lacks a dominant headquarters. Global
Corporations are governed by the laws of the country where they are incorporated. A global
business connects its talent, resources and opportunities across political boundaries. Because a
global corporation is more invested in its overseas locations, it can be more sensitive to local
opportunities and also more vulnerable to threats.
Global companies or MNCs operate on a global scale which means they have huge assets
in almost all countries in which they operate. Their turnovers can also be incomprehensibly
large. Also, these corporations have unity of control. The management of the offices in other
countries is controlled by one head office located in the home country. So while they have many
branches in many countries, the main control will remain with the head office in its country of
origin. Multinational corporations keep growing even as they operate in other countries, they
strive to grow their economic size by constantly upgrading and by conducting mergers and
acquisitions.
And in order to achieve substantial
growth, they have at its disposal huge amounts
of wealth and capital-intensive technology.
This allows them to use the best technology
available for production and marketing to
boost their products and their company.
Furthermore, these companies employ only
the best managers, those who are capable of
handling large amounts of funds, using
advanced technology, managing workers, and
running a huge business entity.
One of the most effective survival strategies of global corporations is spending a huge
amount of money on marketing, advertising, and promotional activities. They target an
international audience, so effective marketing becomes necessary.
