UNIT III:

MARKET INTE
GRATION
 OBJECTIVES
1st 2nd 3rd
LEARNING OBJECTI LEARNING OBJECTI LEARNING OBJECTI
Explain the
VE role of in VE VE
Narrate a short history Identify the attri
ternational financial
of global market integr
institutions in the cr
ation in the twentieth c
butes of global c
eation of a global ec entury orporations. 2
onomy
HISTORY OF GLOBAL MARKET I
NTEGRATION
Roman Period and E
arly Voyages
The history of economic glob
alization can be traced back
to the early years of the Rom
an Empire, as evidenced by t
heir extensive transportation
network and the existence of
everyday language, the legal 4
Roman Period and E
arly Voyages
Years went by, and during the early 15t
h century, the different voyages of Vasc
o Da Gama, Columbus, Magellan, and ot
hers have proved that technological adv
ances have made it possible to sail over
the other continents and to facilitate int
ercontinental trade. Different global po
wers that exist during those times, such
as Spain, Portugal, Britain, and Italy, hav
e controlled international trade, which f 5
Napoleonic Wars in 1
815 and the Beginni
ng of World
• During War
this time, the I
international
trade expanded significantly as di
d cross-border flows of financial c
apital and labor.
• Technological advancement in hi
s year can be seen from the repla
cement of the sail and railroads b
y the steam power. The opening
of the Suez Canal has helped to r 6
Napoleonic Wars in 1
815 and the Beginni
ng of World
• Trade expandedWar I of
the variety
available goods, both in Europ
e and elsewhere. As the trade
monopolies of earlier times w
ere replaced by intense comp
etition, prices converged glob
ally for a wide range of comm
odities, including spices, whe
7
at, cotton, pig iron, and jute (F
Two World Wars, Gre
at Depression; Post
World War and Great
• The heightened economic integr
Depression
ation achieved during the early 1
9th century was ruined by the tw
o world wars and the great depre
ssion.
• The major powers of those times,
the United States, Western Europ
e, and Japan, have undertaken th
e task of rebuilding the economic
8
system, including Infrastructure, I
Bretton Woods Syste
m
• The goal of this agreement
was to create an efficient fo
reign exchange system, pre
vent competitive devaluati
ons of currencies, and pro
mote international econom
9
ic growth.
Bretton Woods Syste
m
• The scenario has led the delegate
s of this conference to establish t
he fixed exchange rate with the
U.S. dollar to be pegged to the va
lue of Gold. Moreover, all 24 othe
r currencies in the system were th
en pegged to the U.S. dollar's val
ue. During those times, the excha
nge rate applied at the time set t 10
INTERNATIONAL MONETARY F
UND
WORLD BANK
WORLD BANK ORGA
NIZATIONS
• International Bank for Reconstruc
tion and Development
• International Development Associ
ation
• International Finance Corporatio
ns
• Multilateral Investment Guarante
e Agency
13
• International Centre for Settleme
General Agreement on Tariffs and T
rade (GATT)
World Trade Organization (WTO)
Market Integration
Negative Integration
Types of Market Integration

This implies eliminating barriers that re

strict the movement of goods, services,
and factors of production. Also, the Go
vernment plays a minor role in policym
aking regarding manufacturing, distrib
ution, and flow of goods. 17
Positive Integration
Types of Market Integration

The Government may adjust domestic

policies and institutions through the cr
eation of supranational arrangements.
Likewise, It is often identified with posi
tive values like social protection and th
e correction of market failures. 18
Degree of Economic Int
egration
Levels of Economic Integration

• Preferential Agreement is considered to be th

e first stage to which it lessens tariffs and quot
as between member countries who have signe
d the agreement. It allows member countries t
o have access to some of their products. Tariff
s are not eliminated but it is lessened as comp
ared to non-participating countries. 19
Degree of Economic Int
egration
Levels of Economic Integration

• Free Trade Area is considered to be the se

cond stage of economic integration for wh
ich it reduces barriers to trade among me
mber countries to zero, but each member
country has its own decision when it come
s to the external rate of tariff to nonmemb
er countries. 20
Degree of Economic Int
egration
Levels of Economic Integration

• Custom Union is almost similar to th

e free trade area but it differs from t
he former economic integration as C
ustom Union has a common external
rate of tariff to nonmember countrie
s. 21
Degree of Economic Int
egration
Levels of Economic Integration

• Common Market is second to the hi

ghest degree of economic integratio
n by which labor and capital are incl
uded in the trade. It is to integrate b
oth product and factor markets of m
ember countries. 22
Degree of Economic Int
egration
Levels of Economic Integration

• Economic Union is considered to be

the final step in complete integration
by which the member countries have
common policies that involve comm
on currency among member nations,
fiscal and political policies. 23
INTERNATIONAL MONETARY F
UND
WORLD BANK
World Trade Organization (WTO)
Internationa
l/Regional
Organizatio
n and Allian
ces
Organization for Economic Co-Operation and D
evelopment (OECD)
Organization of Petroleum Exporting Co
untries (OPEC)
Association of Southeast Asian Nati
ons (ASEAN)
Asia-Pacific Economic Cooperation
(APEC)
European Union (EU)
North American Free Trade Agreem
ent (NAFTA)
Global Corporations

• It is a company that operates beyon

d its local boundary.
• Thus, most of the global companies
works in more than one country an
d has some foreign investment.
34
Global Corporations

• Global corporations are deemed to

be one of the major players in econo
mic integration as their goods and c
ommodities allow other countries to
engage in foreign trading and excha
nge. 35
International Compani
es
Types of Global Corporations

• This company operates primarily in a single

country but has some exposure to foreign
markets. These are basically importers and
exporters. The most common type of Ameri
can international business is one that purc
hases products or raw materials from inter
national markets 36
Multinational Compani
es
Types of Global Corporations

• This Company operates in more than one

country and receive substantial income fr
om these foreign operations qualify as mul
tinational in nature. Multinational compan
ies, while usually controlled by manageme
nt based in a single country, cater to mark
ets in individual countries. 37
Transnational Compani
es
Types of Global Corporations

• Invests directly in dozens of countries an

d has a global headquarters that distrib
utes decision-making capabilities to its v
arious local operations.

38
Global Companies
Types of Global Corporations

• This kind of company would usually operate on

a worldwide scale, but it would not be tied lega
lly to any nation.
• They have an investment in many countries but
maintain a strong headquarters in one country.
• They typically market their products and servic
es to each individual global market. 39