History of Global Market Integration

 The history of global market goes way back during the roman days as evidenced by
their expansive, yet unified empire made possible by an extensive network of
transportation, common language, common legal system and common currency.
 In more recent history, cooperation among countries was crucial to help rebuild economies as a
result of world wars, economic depression and other crises
 In today’s modern world, cooperation among countries continues to be relevant. It
is a prerequisite to achieve developmental goals.

Napoleonic Wars in 1815 (Beginning of World War 1)

 Marked by significant expansion of trade as transportation and communication became more
efficient due to many technological advancements like the stream engine and telegraph
 Suez Canal was opened which decreased travel time between Europe and Asia
 In general, the governments’ policies were favorable to openness of trade, capital, mobility, and
migration
 The economic structure followed the core periphery pattern.
o Capital-rich European countries were the center of trading. Funds flow from core to
periphery, and raw materials and natural resources flowed from periphery to core

World War 1 (1914-1918), The Great Depression (1930’s), World War II (1939-1945)
 These events decimated the flourish of international economic activities in the 19th Century

Post World Wars and Post Economic Depression

 After WWII, major powers composed of the western European countries, USA or Japan took the
large tasks of rebuilding the physical infrastructures, international trade, and the monetary
system.
 It took decades of efforts from this major powers before they ultimately succeeded in restoring
to a substantial degree the global economic integration

Bretton Woods System and the 1944 Agreement

 The Bretton Woods agreement was created in a conference of all the WWII allied countries at
Bretton Woods, New Hampshere, USA in 1944
 The conference’s agenda was to address the sufferings brought about by the Great Depression
in the 1930’s and the WWII

The Bretton Woods Agreement and System

 It replaced the gold standard with the US Dollar as the global currency
o The Bretton Woods Agreement established a new Global Monetary System

 It created the World Bank and the International Monetary Fund to monitor the new system
o WORLD BANK – Provides financing to developing countries to help reduce poverty and
support economic growth
 Supports key developmental Areas such as education, health, agriculture and
infrastructure
 o IMF – Provides financial assistance on countries on economic crisis or with threatened
currencies
 Help protect the stability of the global monetary system

 Countries agreed that their central banks will maintain fixed exchange rates between currencies
and the US dollar
 Countries agreed to avoid trade wars. They will not lower their currencies strictly to increase
trade

The General Agreement on Tariffs and Trade (GATT)

 Signed into law in January 1, 1948 with 23 countries after WWII to regulate world trade in an
effort to aid economic recovery
 The treaty’s main objective was to remove barriers blocking international trade by reducing
tariffs, quotas and subsidies
 It was first intended to be an interim agreement but it remained in place and active until the
World Trade Organization replaced it in 1995

World Trade Organization (WTO)

 Established in Uruguay in 1986 and replaced GATT in 1995
 An independent multilateral organization responsible for trade services, non-tariff related
barriers to trade, and other broader areas of trade liberalization
 125 nations signed on with WTO constituting more than 90% of the World’s Trade

Economic Integration – A term to describe how different aspect of economies are integrated

As the economic integration increases, the barriers to trade between market diminishes.

DEGREE OF ECONOMIC INTEGRATION

Preferential Trading Area

 Considered as the first stage of Economic Integration
 Gives preferential aspects to certain products from participating countries by reducing tariffs
 Tariffs are not eliminated but are lower vs. non participating countries

Implications of Preferential Trading Area

 Trade Creation – Occurs when the preferential trading results to the substitution of high cost-
local products by lower cost imported products
 Trade Diversion – Occurs when the preferential trading results to the substitution of the low-
cost imports from nonmember states with higher cost imports from member states.

Free Trade Area

 Considered as the second stage of economic integration
 Elimination of tariffs, quotas, and preferences on most goods or services traded between
countries in the trade block
 However, no unified policy outside the free trade Area
 Example NAFTA
 o North American Free Trade Agreement (NAFTA) – created to eliminate barriers to trade
between US, canada and Mexico
 One of the world’s largest free trade zones
 Established in 1994

CONSEQUENCES OF NAFTA

Positive
 Lowered prices by reducing tariffs
 Providing opportunities for business to expand their market
 Quadrupled trade between the three nations
 Generated 5 million US jobs

Negative
 Excessive pollution
 Loss of manufacturing jobs
 Exploitation of workers in Mexico
 Moved Mexican farmers out of business

The United States Mexico Canada Agreement (USMCA); the new NAFTA
 Signed by the USA, Canada, and Mexico in November 30, 2018
 Established to provide freer market and fairer trade for the benefit of workers, farmers, ranchers
and business in order to drive robust (strong) economic growth
 Another objective is to provide another well-paying jobs and new opportunities for the North
American Middle Class

Custom Union – Similar to Free Trade Area but the members have common external tariffs and joint
position in trade negotiations with countries outside the union

Common Market
 Custom Union + Movement Factors, especially labor and capital
 The Key Feature is the extension of free trade from just tangible goods to include all economic
resources (Labor and Capital)
 A common (single) market is the most significant step towards full economic integration

Economic Union
 The final step in the economic integration process
 Union member countries allow the freedom of movements of goods, services, and the factors of
production plus they have a common external trade policy
 Union member countries have common currency and harmonized monetary and fiscal policies
 Example: European Union

European Union
 Austria, Belgium, Bulgaria, Croatia, Republic of Cyprus, Czech Republic, Denmark, Estonia,
Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta,
Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain and Sweden.
  Operates as one unit in the global economy with majority of member states adopting the Euro as
their single currency (Denmark and UK negotiated to retain their currencies)
 Its purpose is to be more competitive in the global marketplace. The EU’s trade structure has
propelled it to become the world’s second largest economy after China.
 The European Union took effect in 1993 under the Maastricht Treaty

Financial Institution - any institution engaged in the business of providing financial services to
customers who maintain a credit, deposit, trust, or other financial account or relationship with the
institution.

What are International Financial Institutions?

 International Financial Institutions are established and owned by several governments and
international institution and is subject to international law
 They are members of the World Bank Group (i.e. International Finance Corporation), Regional
Development Banks (i.e. Asian Development Bank), and export credit agencies of individual
country governments (i.e. US Export Import Band).

Goals of IFI’s
 Help reduce global poverty and improve living conditions and standards
 Support sustainable economic, social, and institutional development
 Promote regional and/or global cooperation and integration

Focus Areas of International Financial Institutions

 Support the social and economic development programs of nations with developing or
transitional economy
 Provide technical and advisory assistance in the implementation of large scale infrastructure
projects in emerging markets
 Provide Capital to increase the participation of other players such as sub-national government
entities as well as the private sector

International Organizations and Alliances

In addition to financial institutions, there are many international organizations and alliances which were
established to foster stronger economic, political or security ties among nations. They also play
important roles in global market integration.

The Organization for Economic Cooperation and Development (OECD)

 Group of influential and highly developed countries that discuss and develop economic and
social policies
 Publishes economic reports, data bases, analyses, and forecasts on the outlook for world-wide
economic growth.
 Established in 1960 by European Nations; US and Canada joined in 1961; now with members
from South Africa and Asia-Pacific

The Organization of Petroleum Exporting Countries (OPEC)

 Was established to increase the price of oil, which in the past had a relatively low price and had
not kept up with the inflation
  With considerable global market power as it has major control of the world’s crude oil and
natural reserves estimated at around 80% and 50% respectively
 Founded in 1960 by five oil-producing countries: Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela

Association of Southeast Asian Nations

 Was established on August 8, 1967; Philippines was one of the founding members, today there
are 11 member states after the Timor-Leste applied for membership in 2011
 Brunei, Burma (Myanmar), Cambodia, Timor-Leste, Indonesia, Laos, Malaysia, the Philippines,
Singapore, Thailand and Vietnam.
 One of ASEAN’s aims and purpose is to accelerate the economic growth, social progress, and
cultural development in the region
 The establishment of the ASEAN Economic Community (AEC) in 2015 was a major milestone in
the regional economic integration agenda; ASEAN market was one of the largest market in Asia
and it also made it to the top ten across the world

Global Corporations are key players in the global economic integration. They influence consumer
behavior like spending patterns, lifestyles, work, and culture among others. With the advancement of
technology, more so with digital technology, the world has become smaller and easier for global
corporations to conquer

Nature of Global Corporations

 Conduct major activities like manufacturing, distribution, research & development, marketing
and selling of products and services in countries other than country of origin
 Some can influence the local and global trade laws or regulations, economy, and culture
 Some have strong brand recognition globally

Classifications of Global Corporations

 International Companies - make their products at their originating country
o No foreign investments
o International activities are limited to importing and exporting of products
 Multi-national Companies – Have foreign investments and localizes products and services
according to preferences of the local market

Global Companies – have

investments in many countries but
maintains a strong headquarters in
one country
o Typically market their products
and services to each individual
global market
 Transnational Companies –
very complex organizations with
investments in many countries
o Have global headquarters but
distributes decision making powers
and research and
development to various national
headquarters
 Global Companies – have investments in many countries but maintains a strong headquarters in
one country
o Typically market their products and services to each individual global market
 Transnational Companies – very complex organizations with investments in many countries
o Have global headquarters but distributes decision making powers and research and
development to various national headquarters