move their stocks to other place if

THE CONTEMPORARY prices were higher there.

WORLD: LESSON 3 ------------------------------

World Economies have been brought closer
by globalization. It is the reflected in the phrase
MARKET – “when America sneezes, the whole world
catches a cold.”
INTEGRATION It is important to remember though that it is not
only the economy of the United States but also
INTRODUCTION
other economies in the world that have
significant impact on the global market and
Economy is the social institution that
finance.
has the biggest impact on society. We usually
think of economy in terms of numbers – number The strength of a more powerful economy
of unemployed, GDP, or how the stock market is brings greater effect on other countries. In the
doing today. same manner, crises on weaker economies have
less effect than other countries.
While we often talk about it in numerical terms,
the economy is composed of people. The people Although countries are heavily affected by the
is the social institution that organizes gains and crises in the world economy,
everything happening in the society; production, organizations that they consist also contribute
consumption, and trade of goods. to these events.
There are many ways in which a product can be ------------------------------
made, exchanged and used. Think about
capitalism or socialism. These economic systems The following are financial institutions and
– and the economic revolutions that created economic organizations that made countries
them – shape the way people live their lives. even closer together, at least, when it
comes to trade:
------------------------------
1. THE BRETTON WOODS SYSTEM
WHAT IS MARKET INTEGRATION?
Bretton Woods Agreement and System.
Market integration is the fusing of
many markets into one. The Bretton Woods Agreement was
negotiated in July 1944 to establish a new
Global Market integration means that price
international monetary system, the Bretton
differences between countries are
Woods System. The Agreement was
eliminated as all markets become one.
developed by delegates from 44 countries
 Example - In one market a at the United Nations Monetary and
commodity has a single price such as Financial Conference held in Bretton Woods,
the price of rice would be the same New Hampshire.
in southern and northern Luzon if
Under the Bretton Woods System, gold was
these areas were part of the same
the basis for the U.S. dollar and other
market. If the price in Southern
currencies were pegged to the U.S. dollar’s
Luzon was higher, seller of rice
value. The Bretton Woods System effectively
would move from North to South
came to an end in the early 1970s when
and prices would equalize. The price
President Richard M. Nixon announced that
of rice in one place to other might
the U.S. would no longer exchange gold for
be different, though, and high
U.S. currency.
transport costs and other kind of
expenses might mean that it would Approximately 730 delegates representing
be uneconomical for other sellers to 44 countries met in Bretton Woods in July
Sources: https://www.investopedia.com/; https://www.worldbank.org/; https://www.imf.org/external/index.htm;
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 1944 with the principal goals of creating first century, the IMF has 189 member
an efficient foreign exchange system, countries and still continues to support
preventing competitive devaluations of global monetary cooperation. In tandem,
currencies, and promoting international the World Bank helps to promote these
economic growth. The Bretton Woods efforts through its loans and grants to
Agreement and System were central to governments.
these goals. The Bretton Woods Agreement
[PHL debt stock reached $78.824 billion in
also created two important organizations—
2018–World Bank.
the International Monetary Fund (IMF) and
the World Bank. While the Bretton Woods https://businessmirror.com.ph/2019/10/03/
System was dissolved in the 1970s, both the phl-debt-stock-reached-78-824-billion-in-
IMF and World Bank have remained strong 2018-world-bank/]
pillars for the exchange of international
What is the IMF and what are its purpose?
currencies.
The International Monetary Fund (IMF) is an
Its principal goal was to create an efficient
organization of 189 countries, working to
foreign exchange system, preventing
foster global monetary cooperation, secure
competitive devaluations of currencies,
financial stability, facilitate international
and promoting international economic
trade, promote high employment and
growth.
sustainable economic growth, and reduce
It wasn't until 1958 that the Bretton Woods poverty around the world.
System became fully functional. Once
The IMF’s fundamental mission is to ensure
implemented, its provisions called for the
the stability of the international monetary
U.S. dollar to be pegged to the value of
system. It does so in three ways: keeping
gold. Moreover, all other currencies in the
track of the global economy and the
system were then pegged to the U.S.
economies of member countries; lending to
dollar’s value. The exchange rate applied at
countries with balance of payments
the time set the price of gold at $35 an
difficulties; and giving practical help to
ounce.
members.
2. THE INTERNATIONAL MONETARY FUND
The IMF also performs several roles and
AND THE WORLD BANK.
functions: Economic Surveillance, Lending,
The Bretton Woods Agreement created and Capacity Development.
two Bretton Woods Institutions, the IMF
What is the World Bank and what are its
and the World Bank.
purpose?
Formally introduced in December 1945 both
The World Bank is an international financial
institutions have withstood the test of time,
institution that provides loans and grants to
globally serving as important pillars for
the governments of poorer countries for the
international capital financing and trade
purpose of pursuing capital projects. It
activities.
comprises two institutions: the
The purpose of the IMF was to monitor International Bank for Reconstruction and
exchange rates and identify nations that Development, and the International
needed global monetary support. The Development Association.
World Bank, initially called the International
 THE IBRD.
Bank for Reconstruction and Development,
- The International Bank for
was established to manage funds available
Reconstruction and
for providing assistance to countries that
Development (IBRD) lends to
had been physically and financially
governments of middle-
devastated by World War II. In the twenty-
Sources: https://www.investopedia.com/; https://www.worldbank.org/; https://www.imf.org/external/index.htm;
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 income and creditworthy - The International Centre for
low-income countries. Settlement of Investment Disputes
The International Centre for
 THE IDA. Settlement of Investment Disputes
- The International (ICSID) provides international
Development Association facilities for conciliation and
(IDA) provides interest-free arbitration of investment disputes.
loans — called credits — and
grants to governments of the 3. FREE TRADE AREAS.
poorest countries.
What are free trade areas?
The World Bank has two ‘ambitious’ goals
A free trade area is a region in which a
that it hopes to perform by 2030: 1) End
group of countries has signed a free trade
extreme poverty by decreasing the
agreement and maintain little or no barriers
percentage of people living on less than
to trade in the form of tariffs or quotas
$1.90 a day to no more than 3%; 2)
between each other. Free trade areas
Promote shared prosperity by fostering the
facilitate international trade and the
income growth of the bottom 40% for every
associated gains from trade along with the
country.
international division of labor and
Along with the two institutions IBRD and specialization. However, free trade areas
IDA, there are three other organizations have been criticized both for costs that are
within the World Bank Group. Namely; associated with increasing economic
integration and for artificially restraining
- The International Finance
free trade.
Corporation
The International Finance  NORTH AMERICAN FREE TRADE
Corporation (IFC) is the largest AGREEMENT.
global development institution - The North American Free
focused exclusively on the private Trade Agreement, which
sector. We help developing countries eliminated most tariffs on
achieve sustainable growth by trade among Mexico,
financing investment, mobilizing Canada, and the United
capital in international financial States, went into effect on
markets, and providing advisory Jan. 1, 1994. Numerous
services to businesses and tariffs, particularly those
governments. related to agriculture,
textiles, and automobiles,
- The Multilateral Investment were gradually phased out
Guarantee Agency between Jan. 1, 1994 and
The Multilateral Investment Jan. 1, 2008.
Guarantee Agency (MIGA) was  ASSOCIATION OF SOUTHEAST
created in 1988 to promote foreign ASIAN NATIONS FREE TRADE AREA.
direct investment into developing - The Association of Southeast
countries to support economic Asian Nations (ASEAN) is a
growth, reduce poverty, and regional organization of 10
improve people’s lives. MIGA fulfills Southeast Asian and Pacific
this mandate by offering political risk Rim countries whose
insurance (guarantees) to investors governments collaborate to
and lenders. promote socio-cultural,
economic, and political

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 advancement in the region. movement of goods,
ASEAN is an official observer services, people, and money.
of Asia-Pacific Economic
Cooperation (APEC), a 21-
member economic group  ORGANISATION FOR ECONOMIC
that promotes free trade and CO-OPERATION AND
sustainable development in DEVELOPMENT (OECD)
Pacific Rim countries. - The Organisation for
 ASIA-PACIFIC ECONOMIC Economic Co-operation and
COOPERATION (APEC) Development (OECD) is a
- The Asia-Pacific Economic group of 34 member
Cooperation (APEC), is an countries that discuss and
economic group of 21 develop economic and social
members, formed in 1989, policy. OECD members are
with the primary goal of democratic countries that
promoting free trade and support free-market
sustainable development in economies.
the Pacific Rim economies.
The creation of APCE was The Organisation for
primarily in response to the Economic Co-operation and
increasing interdependence Development (OECD) is
of Asia-Pacific economies. variously referred to as a
Also, the proliferation of think tank or monitoring
regional economic blocs, group. Its stated goals
such as the European Union include fostering economic
(EU) and the, now defunct, development and
North American Free Trade cooperation, fighting poverty,
Area (NAFTA), encouraged its and ensuring the
formation. environmental impact of
 EUROPEAN UNION (EU) growth and social
- The European Union (EU) is a development is always
group of 28 countries that considered. Over the years, it
operates as a cohesive has dealt with a range of
economic and political block. issues, including raising the
Nineteen of the countries standard of living in member
use the euro as their official countries, contributing to the
currency. expansion of world trade and
promoting economic
The EU grew out of a desire stability.
to form a single European
political entity to end the The OECD was established on
centuries of warfare among Dec. 14, 1960, by 18
European countries that European nations plus the
culminated with World War II United States and Canada. It
and decimated much of the has expanded over time to
continent. The European include members from South
Single Market was America and the Asia-Pacific
established by 12 countries region. It includes most of
in 1993 to ensure the so- the highly developed
called four freedoms: the economies.
Sources: https://www.investopedia.com/; https://www.worldbank.org/; https://www.imf.org/external/index.htm;
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 Next Lesson: Capitalism and
Socialism

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