MARKET INTEGRATION

Prepared by: Group 4 • BSPSY A2023

At the end of this chapter, you should be able to:

1. Explain the role of international financial

institutions in the creation of a global economy.
2. Narrate a short history of global market
integration in the twentieth century and
3. Identify the attributes of global corporations.

International Financial Institutions - is a Global Corporation - is coined from the base

financial institution that has been established term ‘global’, which means all around the world.
(or chartered) by more than one country and It is a company that operates in at least a
hence is subject to international law. Its owners country other than the country where it
or shareholders are generally national originated.
governments, although other international
institutions and other organizations occasionally
figure as shareholders. The most prominent IFI’s
are creations of multiple nations.
INTRODUCTION:

Have you heard the phrase, “When the American economy sneezes,
the rest of the world catches cold.” This means that world
economies have been brought closer together by globalization. But
it is important to remember that it is not only the economy of the
United States that has the significant impact in the global market
and finance.
This is clear for example, in the global impact of the financial crises that struck
Asia and Russia in 1990’s. However, it remains the case that more powerful
economy, the greater the effect of its crises on the rest of the world. On the
same manner, crises on the weaker economies have less effect on other
countries. For example, Argentina’s serious financial crisis in the late 1990’s
and early 2000s had a comparatively small impact on the global economy.
 ECONOMIC DEVELOPMENT DURING AND AFTER WORLD WAR II:

Prior to the world war II, economic globalization has been experienced throughout the world,
but when world war II started it collapsed and also brought about by economic depression.
All of these events have negative effects on almost all major economies (the U.S. economy
was a major exception, at least in terms of the effect of the two world wars). Of particular
importance in the 1930’s was the movement of many countries-notably fascist Italy and
Germany-in the direction of autarky, or in the turn inward in order to create as much
economic self-sufficiency as possible. Such a turn inward is, of course, anathema to
globalization, which requires that various entities-including nation states – be outward
looking, rather than inward looking, not only in the way they view the world but also in their
actual dealings with other parts of the world.
Autarky - economic independence or self-sufficiency

Anathema - something or someone that vehemently dislikes

BRETTON WOODS AND THE BRETTON WOODS SYSTEM

A key factor in the Depression was thought to be a lack of

cooperation among nation-states. That lack of cooperation was
associated with high tariffs and other import restrictions and
protectionist practices, as well as the propensity of governments to
devalue their currencies in order to gain an edge in global trade
over other countries. The latter also made exchange rate wars
among the nations involved more likely.
 Those concerns were the backdrop for the creation of the Bretton Woods system and its
five key elements:

1) Each participating state should establish a “par value” for its currency expressed in terms
of gold or equivalently in terms of the gold value of the U.S. dollar.

2) Secondly, the official monetary authority in each country (a central bank or its equivalent) would
agree to exchange its own currency for those of other countries at the established exchange rates,
plus or minus a one-percent margin.

3) Thirdly, the International Monetary Fund (IMF) was created to establish, stabilize, and oversea
exchange rates.

4) Fourthly, the member states agreed to eliminate, at least eventually, “all restrictions on the use
of its currency for international trade”.

5) Finally, the entire system was based on the U.S. dollar (at the end of the world war II the U.S.
had about three-fourths of the world’s gold supply and accounted for over one-fifth of the world
exports).
 General Agreement on Tariff’s and Trade World Trade Organization (WTO)
(GATT)
The WTO is a multilateral organization
General Agreement on Tariffs and Trade headquartered in Geneva, Switzerland with 152
(GATT) was a system for the member nations as of 2008 (as of present 159
liberalization(removal or loosening of member countries). Its focus on trade places it
restrictions on economic and political system) at the heart of economic globalization and has
of trade that grew out of the Bretton Woods made it a magnet for those opposed either to the
System and came into existence in 1947. It broader process of trade liberalization and
operated until 1995 when it was superseded promotion or to some specific aspect of WTO
by the World Trade Organization (WTO). operations. It is continuous to be concerned with
tariff barriers, as well as restrictions on trade in
services. The WTO also deals with other types of
protectionism.
International Monetary Fund (IMF) 190 member countries

The goal of the IMF is macroeconomic stability for both member nations and the global economy. More
specifically, the IMF deals with exchange rates, balances of payments, international capital flows, and the
monitoring of member states and their macroeconomic policies. The IMF is a lightning rod for critics who see it
as supporting developed countries and their efforts to impose their policies on less developed countries. Its
supporters see it as key to the emergence and further development of the global economy.

World Bank (WB) 189 member countries

The World Bank (WB), officially the International Bank for Reconstruction and Development (IBRD) is the most
important element of the World Bank Group (WBG). The IBRD or the bank was established in 1944 at Bretton
Woods and began operations in 1946. Membership is open to all member states of the IMF.
Among the missions of the bank are as follows:
Encouraging development of productive facilities and resources in less developed countries.
Funding for productive purposes when private capital cannot be obtained on reasonable terms.
Encouraging international investment in order to promote international trade and development and
equilibrium in balance of payments and
Helping member countries improve their productivity, standard of living, and labor conditions.
For your information: The Philippines is a member of WTO, IMF and the World Bank.
CHARGES IN BRETTON WOODS ERA ORGANIZATIONS

In the twenty-first century, the organizations that were spawned by Bretton

Woods-the World Bank, the International Monetary Fund, and the World Trade
Organization-are undergoing dramatic changes. A former U.S. secretary
commented: “The Bretton Woods System has become outmoded. It has served
us very well for a long time, but these institutions haven’t changed with the
time. They need to be rethought and restructured. Recent changes in the
organizations are traceable to several major forces including globalization, major
trade disputes, and the increasing power and ambition of growing economic
powers, especially in Asia.
CHARGES IN BRETTON WOODS ERA ORGANIZATIONS

In terms of the latter, World Bank has been loaning large sum of money to countries
whose economies did not need such loans (e.g., China, including $710 million in early
2009 to help rebuild areas hit by the 2008 earthquake). In fact, of the bank’s $23 billion
in loans in 2006, $13 billion went to “middle income” countries rather than to poor
countries. Even in terms of the funds that do go to poor countries, the World Bank is an
increasingly small player in comparison to various international and private aid
organizations. As a result, one professor said, “It’s hard to see what good it has done
anywhere”. The bank argues it is helping large numbers of the poverty-stricken less-
developed countries, while its critic say it is the opening of markets there, and not bank
loans, that has helped in poverty reduction. Another issue raised was the leadership of
these organizations, especially the preeminent position is occupied by the U.S which has
become increasingly controversial for various reasons including the fact that the U.S. is
not contributing as much money as it used to, at least in comparison to other nations.
 A CRITIQUE OF THE BRETTON WOODS SYSTEM

One of the most effective critics of the Bretton Woods System era
organizations is the noted economist Joseph E. Stiglitz. His critique
is especially powerful because he had great practical experience as
a member of President Bill Clinton’s Council of the Economic
Advisors and as Chief Economist at the World Bank. Thus, he was
able to view the operations of the global economic system not only
from the inside, but also from prominent positions within powerful
institutions within that system. It is the fact that this is a critique
from within rather than from those who are in the periphery of the
system, and who feel they are being exploited by it, that gives
Stiglitz’s argument so much power.
 A CRITIQUE OF THE BRETTON WOODS SYSTEM

For Stiglitz, globalization is defined as “the removal of barriers to

free trade and the closer integration of national economies.” He
said that economic globalization can be a positive force and can
enrich everyone in the world including the poor. However, he said
that this has not been the case because of the way globalization is
being handled, and especially international trade agreements have
been managed including their imposition on less developed nations.
As a result, Stiglitz sees an increase in global poverty as well as a
growing gap between the global rich and the global poor.
 OTHER IMPORTANT ECONOMIC ORGANIZATION

The Organization for Economic Cooperation and Development (OECD) 8 is a broad group of, at the
moment, 30 developed nations. The OECD is “the most encompassing ‘club’ of the world’s rich
countries. It has little formal power but is highly influential.
The European Union (EU) is a product of post -WW II era, as well as the Bretton Woods Era, and
now encompasses 27 member states. It is the largest domestic market in the developed world (soon
to be surpassed by China), with over 500 million citizens.
The North American Free Trade Agreement (NAFTA) came into effect on January 1, 1994. It was
based on the idea that the U.S., Canada, and Mexico were to eliminate most barriers to trade and
investment over the ensuing 15 years.
Mercosur, sometimes called as Southern Common Market, was created by the Treaty of Asuncion
1991 with the goal of a common market in South America in 1995.
The Organization of Petroleum Exporting Countries (OPEC) was formed in 1960 and included the
major oil exporters – Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela (there are now 11 members:
Indonesia, Algeria, Libya, Nigeria, Qatar, and the United Arab Emirates have been added.
THANK YOU !
 MEMBERS:

1. Aguinaldo, Princess Joy Z.

2. Bonifacio, Jerielyn B.
3. Castronuevo, Aza A.
4. Cena, Ahkicia Mae B.
5. Diranggoin, Jilly Khem D.
6. Ombaogan, Dinawil S.
7. Sigasig, Mary Chris P.