GLOBAL ECONOMY * A Joint Statement by Experts on the Establishment of an

The global economy refers to the interconnected worldwide International Monetary Fund” was published on April 21, 1944. On
economic activities that take place between multiple countries. May 25, 1944, invitation was sent from the US to the Allied
Characteristics: countries.
1. Globalisation - It describes a process by which national and * Three institutions:
regional economies, societies, and cultures have become integrated 1. International Monetary Fluid
through the global network of trade, communication, immigration, 2. General Agreement on Tariffs and Trade
and transportation. 3. World Bank
2. International trade - It is considered to be an impact of  IMF
globalisation. It refers to the exchange of goods and services * is an organization of 189 countries
between different countries, and it has also helped countries to * Conceived on July 1944 and came into formal existence on 27
specialise in products which they have a comparative advantage in. December 1945 after the 29 countries ratified the Article of
3. International finance- Money can be transferred at a faster rate Agreement
between countries compared to goods, services, and people; * By the end of 1946, IMF has grown to 39 members
making international finance one of the primary features of a global * March 1, 1947, the IMF began its financial operations and on 8th
economy. day of May, France became the first country to borrow from it.
4. Global investment -This refers to an investment strategy that is  Role of IMF (2 VIEWS):
not constrained by geographical boundaries. Global investment 1. John Maynard Kaynes - He imagined that the IMF would be
mainly takes place via foreign direct investment (FDI). a cooperative fund upon which member states could draw to
Dimensions: maintain economic activity and employment through periodic
* Globalization of trade of goods and services; crises.
* The globalization of financial and capital markets; 2. Harry Dexter White - He foresaw an IMF that functioned
* The globalization of technology and communication; more like a bank, making sure that borrowing states could
* The globalization of production. repay their debts on time.
Who controls the global economy?  IMF’s Fundamental Mission:
Although governments do hold power over countries’ economies, it 1. Economic surveillance - Oversees the international
is the big banks and large corporations that control and essentially monetary system and monitors the economic and financial
fund these governments. policies of it’s 189 member countries.
How does the global economy work? 2. Lending - Provides loans to member countries experiencing
The functioning of the global economy can be explained through actual or potential balance of payments problems to help
one word —transactions. International transactions taking place 3. Capacity Development - To modernize economic policies
between top economies in the world help in the continuance of the and institutions and train people.
global economy. International trade includes the exchange of a
variety of products between countries. World Bank
 The World Bank is an international development organization
Brief History owned by 187 countries.
 Great Depression  The Bank is also one of the world's largest research centers in
* worst economic downturn in the history of the industrialized development. It has specialized departments that use this
world knowledge to advise countries in areas like health, education,
* lasted from 1929 to 1939 nutrition, finance, justice, law and the environment.
* A depression is a sustained, a long-term downturn in economic  Another part of the Bank, the World Bank Institute, offers
activity in on or more economies. training to government and other officials in the world
* Causes: through local research and teaching institutions.
Over Production  The World Bank was established in 1944 to help rebuild Europe
High demand and prices during WWI and Japan after World War II. Its official name was the
Demand and prices fall after war International Bank for Reconstruction and Development
Farmers could not pay back loans (IBRD). When it first began operations in 1946, it had 38
Decrease in consumer spending members.
Rising prices, low wages  Without a place like the World Bank from which to borrow
Overbuying on credit, large debts had to be paid off money, the world’s poorest countries would have few, if any,
Uneven distribution of income ways to finance much-needed development projects.
Over speculation  The International Bank for Reconstruction and Development
Stocks bought on the hope of quick profit.  The International Development Association
Buying on Margin – paying a small % of stock’s price and  The International Finance Corporation
borrowing the rest  Multilateral Investment Guarantee Agency (MIGA)
High tariffs harm world trade.  International Centre for Settlement of Investment Disputes (ICSID)
 Bubble Burst
* Banks fail – people withdrew funds General Agreement On Tariffs And Trade
* 1933 – 11,000 of nation’s 25,000 banks had failed An international agreement superseded by World Trade
* Banks invested in stock market – could not repay loans Organization in 1994, that minimizes barriers to international trade
* Account not insured – millions lost their savings by eliminating or reducing quotas, tariffs and subsidies.
 Domino Effect
*PEOPLE LOSE JOBS-BUSINESSES CLOSE DOWN-MORE PEOPLE JOBS
 World War II
* a global war that lasted from 1939 to 1945
* World War 2 worsen the Great Depression
 Bretton Woods Conference
* It was the gathering of 730 delegates from all 44 Allied nations to
regulate the international monetary and financial order after the
conclusion of World War II.
 MARKET INTEGRATION
- refers to the process of creating a unified marketplace where a.) Forward Integration
goods, services, and capital can flow freely between countries or - If a firm assumes another function of
regions. marketing which is closer to the
- Integration shows the relationship of the firm in a market. consumption function, it is a case of forward
- Market integration occurs when prices among different location or integration.
related goods following similar patterns in a long period. Example: wholesaler assuming the function
 Market Integration can take many forms including: of retailing
- Reduction of trade barriers such as tariffs b.) Backward Integration
- Adoption of a common currency - This involves ownership or a combination
- Harmonization of regulatory standards of sources of supply.
- Development of infrastructure to facilitate transportation and Example: when a processing firm assumes
communication the function of assembling/purchasing the
 Types of Market Integration: produce from the villages.
1. Horizontal Integration c.) Balance Vertical Integration
▪ This occurs when a firm or agency gains control of other firms or - The third type of vertical integration is a
agencies performing similar marketing functions at the same level combination of the backward and the
in the marketing sequence. forward vertical integration.
▪ In this type of integration, some marketing agencies combine to ▪ Advantages:
form a union with a view to reducing their effective number and 1. It allows you to invest in assets that are
the extent of actual competition in the market. highly specialized.
▪ In most markets, there is a large number of 2. It gives you more control over your business.
agencies which do not effectively compete with 3. It allows for positive differentiation.
each other. 4. It requires lower costs of transaction.
▪ This is indicative of some element of horizontal 5. It offers more cost control.
integration. 6. It ensures a high level of certainty when it
▪ It leads to reduced cost of marketing. comes to quality.
▪ In this reduced competition possible. 7. It provides more competitive advantages.
▪ Effects of Horizontal Integration: ▪ Disadvantages:
- Buying out a competitor in a time boundway to reduce 1. It can have capacity-balancing problems.
competition. 2. It can bring about more difficulties.
- Gaining larger share of the market and higher profits. 3. It can result in decreased flexibility.
- Attaining economies of scale. 4. It can create some barriers to market entry.
- Specializing in the trade. 5. It can cause confusion within the business.
▪ Advantages: 6. It requires a huge amount of money.
1) Lower costs. 7. It makes things more difficult.
2) Higher efficiency.
3) Increased differentiation. 3. Conglomeration
4) Increased market power. ▪ A combination of agencies or activities not
5) Reduced competition. directly related to each other may, when it
6) Access to new markets. operates under a unified management, be
7) Economics of scale. termed a conglomeration.
8) Economics of scope.
9) International trade.
▪ Disadvantages:
1) Destroyed value.
2) Legal repercussions.
3) Reduced flexibility.
▪ Effects:
2. Vertical Integration - Risk reduction through diversification
▪ This occurs when a firm performs more than one - Acquisition of financial leverage
activity in the sequence of the marketing process. - Empire – building urge.
▪ It is a linking together of two or more functions in the ▪ Degree of Integration:
marketing process within a single firm or under a - To remove transaction costs
single ownership. - Foster competition
▪ This type of integration makes it possible to exercise - Provide better signals for optimal generation and
control over both quality and quantity of the product consumption decisions.
from the beginning of the production process until the - Improve security of supply
product is ready for the consumer.
▪ It reduces the number of middle men in the marketing
channel.
▪ Arrangement of Vertical Integration: