move their stocks to other place if
THE CONTEMPORARY
WORLD: LESSON 3
MARKET
INTEGRATION
INTRODUCTION
Economy is the social institution that has
the biggest impact on society. We usually think
of economy in terms of numbers – number of
unemployed, GDP, or how the stock market is
doing today.
While we often talk about it in numerical terms,
the economy is composed of people. The people
is the social institution that organizes everything
happening in the society; production,
consumption, and trade of goods.
There are many ways in which a product can be
made, exchanged and used. Think about
capitalism or socialism. These economic systems
– and the economic revolutions that created
them – shape the way people live their lives.
------------------------------
WHAT IS MARKET INTEGRATION?
Market integration is the fusing of
many markets into one.
Global Market integration means that price
differences between countries are
eliminated as all markets become one.
 Example - In one market a
commodity has a single price such as
the price of rice would be the same in
southern and northern Luzon if these
areas were part of the same market.
If the price in Southern Luzon was
higher, seller of rice would move
from North to South and prices
would equalize. The price of rice in
one place to other might be
different, though, and high transport
costs and other kind of expenses
might mean that it would be
uneconomical for other sellers to
Sources: https://www.investopedia.com/; https://www.worldbank.org/; https://www.imf.org/external/index.htm;
https://www.studocu.com/en/document/polytechnic-university-of-the-philippines/the-contemporary-world/lecture-
notes/market-integration/3181223/view;
prices were higher there.
------------------------------
World Economies have been brought closer
by globalization. It is the reflected in the phrase
– “when America sneezes, the whole world
catches a cold.”
It is important to remember though that it is not
only the economy of the United States but also
other economies in the world that have
significant impact on the global market and
finance.
The strength of a more powerful economy brings
greater effect on other countries. In the same
manner, crises on weaker economies have less
effect than other countries.
Although countries are heavily affected by the
gains and crises in the world economy,
organizations that they consist also contribute to
these events.
------------------------------
The following are financial institutions and
economic organizations that made countries
even closer together, at least, when it comes
to trade:
1. THE BRETTON WOODS SYSTEM
Bretton Woods Agreement and System.
The Bretton Woods Agreement was
negotiated in July 1944 to establish a new
international monetary system, the Bretton
Woods System. The Agreement was
developed by delegates from 44 countries at
the United Nations Monetary and Financial
Conference held in Bretton Woods, New
Hampshire.
Under the Bretton Woods System, gold was
the basis for the U.S. dollar and other
currencies were pegged to the U.S. dollar’s
value. The Bretton Woods System effectively
came to an end in the early 1970s when
President Richard M. Nixon announced that
the U.S. would no longer exchange gold for
U.S. currency.
Approximately 730 delegates representing
44 countries met in Bretton Woods in July
1944 with the principal goals of creating an cooperation. In tandem, the World Bank
efficient foreign exchange system, helps to promote these efforts through its
preventing competitive devaluations of loans and grants to governments.
currencies, and promoting international
[PHL debt stock reached $78.824 billion in
economic growth. The Bretton Woods
2018–World Bank.
Agreement and System were central to
these goals. The Bretton Woods Agreement https://businessmirror.com.ph/2019/10/03
also created two important organizations— /phl-debt-stock-reached-78-824-billion-in-
the International Monetary Fund (IMF) and 2018-world-bank/]
the World Bank. While the Bretton Woods
What is the IMF and what are its purpose?
System was dissolved in the 1970s, both the
IMF and World Bank have remained strong The International Monetary Fund (IMF) is an
pillars for the exchange of international organization of 189 countries, working to
currencies. foster global monetary cooperation, secure
financial stability, facilitate international
Its principal goal was to create an efficient
trade, promote high employment and
foreign exchange system, preventing
sustainable economic growth, and reduce
competitive devaluations of currencies, and
poverty around the world.
promoting international economic growth.
The IMF’s fundamental mission is to ensure
It wasn't until 1958 that the Bretton Woods
the stability of the international monetary
System became fully functional. Once
system. It does so in three ways: keeping
implemented, its provisions called for the
track of the global economy and the
U.S. dollar to be pegged to the value of gold.
economies of member countries; lending to
Moreover, all other currencies in the system
countries with balance of payments
were then pegged to the U.S. dollar’s value.
difficulties; and giving practical help to
The exchange rate applied at the time set
members.
the price of gold at $35 an ounce.
The IMF also performs several roles and
2. THE INTERNATIONAL MONETARY FUND
functions: Economic Surveillance, Lending,
AND THE WORLD BANK.
and Capacity Development.
The Bretton Woods Agreement created two
What is the World Bank and what are its
Bretton Woods Institutions, the IMF and
purpose?
the World Bank.
The World Bank is an international financial
Formally introduced in December 1945 both
institution that provides loans and grants to
institutions have withstood the test of time,
the governments of poorer countries for the
globally serving as important pillars for
purpose of pursuing capital projects. It
international capital financing and trade
comprises two institutions: the International
activities.
Bank for Reconstruction and Development,
The purpose of the IMF was to monitor and the International Development
exchange rates and identify nations that Association.
needed global monetary support. The World
 THE IBRD.
Bank, initially called the International Bank
- The International Bank for
for Reconstruction and Development, was
Reconstruction and
established to manage funds available for
Development (IBRD) lends to
providing assistance to countries that had
governments of middle-
been physically and financially devastated by
income and creditworthy
World War II. In the twenty-first century, the
low-income countries.
IMF has 189 member countries and still
continues to support global monetary
Sources: https://www.investopedia.com/; https://www.worldbank.org/; https://www.imf.org/external/index.htm;
https://www.studocu.com/en/document/polytechnic-university-of-the-philippines/the-contemporary-world/lecture-
notes/market-integration/3181223/view;
  THE IDA. facilities for conciliation and
- The International arbitration of investment disputes.
Development Association
(IDA) provides interest-free 3. FREE TRADE AREAS.
loans — called credits — and
What are free trade areas?
grants to governments of the
poorest countries. A free trade area is a region in which a group
of countries has signed a free trade
The World Bank has two ‘ambitious’ goals
agreement and maintain little or no barriers
that it hopes to perform by 2030: 1) End
to trade in the form of tariffs or quotas
extreme poverty by decreasing the
between each other. Free trade areas
percentage of people living on less than
facilitate international trade and the
$1.90 a day to no more than 3%; 2) Promote
associated gains from trade along with the
shared prosperity by fostering the income
international division of labor and
growth of the bottom 40% for every country.
specialization. However, free trade areas
Along with the two institutions IBRD and have been criticized both for costs that are
IDA, there are three other organizations associated with increasing economic
within the World Bank Group. Namely; integration and for artificially restraining
free trade.
- The International Finance
Corporation  NORTH AMERICAN FREE TRADE
The International Finance AGREEMENT.
Corporation (IFC) is the largest global - The North American Free
development institution focused Trade Agreement, which
exclusively on the private sector. We eliminated most tariffs on
help developing countries achieve trade among Mexico, Canada,
sustainable growth by financing and the United States, went
investment, mobilizing capital in into effect on Jan. 1, 1994.
international financial markets, and Numerous tariffs, particularly
providing advisory services to those related to agriculture,
businesses and governments. textiles, and automobiles,
were gradually phased out
- The Multilateral Investment between Jan. 1, 1994 and Jan.
Guarantee Agency 1, 2008.
The Multilateral Investment  ASSOCIATION OF SOUTHEAST ASIAN
Guarantee Agency (MIGA) was NATIONS FREE TRADE AREA.
created in 1988 to promote foreign - The Association of Southeast
direct investment into developing Asian Nations (ASEAN) is a
countries to support economic regional organization of 10
growth, reduce poverty, and improve Southeast Asian and Pacific
people’s lives. MIGA fulfills this Rim countries whose
mandate by offering political risk governments collaborate to
insurance (guarantees) to investors promote socio-cultural,
and lenders. economic, and political
advancement in the region.
- The International Centre for ASEAN is an official observer
Settlement of Investment Disputes of Asia-Pacific Economic
The International Centre for Cooperation (APEC), a 21-
Settlement of Investment Disputes member economic group that
(ICSID) provides international promotes free trade and

Sources: https://www.investopedia.com/; https://www.worldbank.org/; https://www.imf.org/external/index.htm;

https://www.studocu.com/en/document/polytechnic-university-of-the-philippines/the-contemporary-world/lecture-
notes/market-integration/3181223/view;
 sustainable development in  ORGANISATION FOR ECONOMIC CO-
Pacific Rim countries. OPERATION AND DEVELOPMENT
 ASIA-PACIFIC ECONOMIC (OECD)
COOPERATION (APEC) - The Organisation for
- The Asia-Pacific Economic Economic Co-operation and
Cooperation (APEC), is an Development (OECD) is a
economic group of 21 group of 34 member
members, formed in 1989, countries that discuss and
with the primary goal of develop economic and social
promoting free trade and policy. OECD members are
sustainable development in democratic countries that
the Pacific Rim economies. support free-market
The creation of APCE was economies.
primarily in response to the
increasing interdependence The Organisation for
of Asia-Pacific economies. Economic Co-operation and
Also, the proliferation of Development (OECD) is
regional economic blocs, such variously referred to as a
as the European Union (EU) think tank or monitoring
and the, now defunct, North group. Its stated goals include
American Free Trade Area fostering economic
(NAFTA), encouraged its development and
formation. cooperation, fighting
 EUROPEAN UNION (EU) poverty, and ensuring the
- The European Union (EU) is a environmental impact of
group of 28 countries that growth and social
operates as a cohesive development is always
economic and political block. considered. Over the years, it
Nineteen of the countries use has dealt with a range of
the euro as their official issues, including raising the
currency. standard of living in member
countries, contributing to the
The EU grew out of a desire to expansion of world trade and
form a single European promoting economic
political entity to end the stability.
centuries of warfare among
European countries that The OECD was established on
culminated with World War II Dec. 14, 1960, by 18
and decimated much of the European nations plus the
continent. The European United States and Canada. It
Single Market was has expanded over time to
established by 12 countries include members from South
in 1993 to ensure the so- America and the Asia-Pacific
called four freedoms: the region. It includes most of the
movement of goods, highly developed economies.
services, people, and money.

Next Lesson: Capitalism and

Socialism
Sources: https://www.investopedia.com/; https://www.worldbank.org/; https://www.imf.org/external/index.htm;
https://www.studocu.com/en/document/polytechnic-university-of-the-philippines/the-contemporary-world/lecture-
notes/market-integration/3181223/view;