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.

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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 move their stocks to other place if prices
were higher there.
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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.

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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.

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 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 efficient foreign exchange system, preventing competitive
devaluations of currencies, and promoting international economic growth. The Bretton Woods
Agreement and System were central to these goals. The Bretton Woods Agreement also
created two important organizations—the International Monetary Fund (IMF) and the World
Bank. While the Bretton Woods System was dissolved in the 1970s, both the IMF and World
Bank have remained strong pillars for the exchange of international currencies.
Its principal goal was to create an efficient foreign exchange system, preventing competitive
devaluations of currencies, and promoting international economic growth.
It wasn't until 1958 that the Bretton Woods System became fully functional. Once
implemented, its provisions called for the U.S. dollar to be pegged to the value of gold.
Moreover, all other currencies in the system were then pegged to the U.S. dollar’s value. The
exchange rate applied at the time set the price of gold at $35 an ounce.
2. THE INTERNATIONAL MONETARY FUND AND THE WORLD BANK.
The Bretton Woods Agreement created two Bretton Woods Institutions, the IMF and the
World Bank.
Formally introduced in December 1945 both institutions have withstood the test of time,
globally serving as important pillars for international capital financing and trade activities.
The purpose of the IMF was to monitor exchange rates and identify nations that needed global
monetary support. The World Bank, initially called the International Bank for Reconstruction
and Development, was established to manage funds available for providing assistance to
countries that had been physically and financially devastated by World War II. In the twenty-
first century, the IMF has 189 member countries and still continues to support global monetary
cooperation. In tandem, the World Bank helps to promote these efforts through its loans and
grants to governments.
[PHL debt stock reached $78.824 billion in 2018–World Bank.
https://businessmirror.com.ph/2019/10/03/phl-debt-stock-reached-78-824-billion-in-2018-
world-bank/]
What is the IMF and what are its purpose?

The International Monetary Fund (IMF) is an organization of 189 countries, working to foster
global monetary cooperation, secure financial stability, facilitate international trade, promote
high employment and sustainable economic growth, and reduce poverty around the world.
The IMF’s fundamental mission is to ensure the stability of the international monetary system.
It does so in three ways: keeping track of the global economy and the economies of member

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;
countries; lending to countries with balance of payments difficulties; and giving practical help to
members.
The IMF also performs several roles and functions: Economic Surveillance, Lending, and
Capacity Development.
What is the World Bank and what are its purpose?
The World Bank is an international financial institution that provides loans and grants to the
governments of poorer countries for the purpose of pursuing capital projects. It comprises two
institutions: the International Bank for Reconstruction and Development, and the International
Development Association.

 THE IBRD.
- The International Bank for Reconstruction and Development (IBRD) lends to
governments of middle-income and creditworthy low-income countries.

 THE IDA.
- The International Development Association (IDA) provides interest-free loans —
called credits — and grants to governments of the poorest countries.
The World Bank has two ‘ambitious’ goals that it hopes to perform by 2030: 1) End extreme
poverty by decreasing the percentage of people living on less than $1.90 a day to no more than
3%; 2) Promote shared prosperity by fostering the income growth of the bottom 40% for every
country.
Along with the two institutions IBRD and IDA, there are three other organizations within the
World Bank Group. Namely;
- The International Finance Corporation
The International Finance Corporation (IFC) is the largest global development institution
focused exclusively on the private sector. We help developing countries achieve
sustainable growth by financing investment, mobilizing capital in international financial
markets, and providing advisory services to businesses and governments.

- The Multilateral Investment Guarantee Agency

The Multilateral Investment Guarantee Agency (MIGA) was created in 1988 to promote
foreign direct investment into developing countries to support economic growth, reduce
poverty, and improve people’s lives. MIGA fulfills this mandate by offering political risk
insurance (guarantees) to investors and lenders.

- The International Centre for Settlement of Investment Disputes

The International Centre for Settlement of Investment Disputes (ICSID) provides
international facilities for conciliation and arbitration of investment disputes.

3. FREE TRADE AREAS.

What are free trade areas?
A free trade area is a region in which a group of countries has signed a free trade agreement
and maintain little or no barriers to trade in the form of tariffs or quotas between each other.
Free trade areas facilitate international trade and the associated gains from trade along with
the international division of labor and specialization. However, free trade areas have been

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;
criticized both for costs that are associated with increasing economic integration and for
artificially restraining free trade.

 NORTH AMERICAN FREE TRADE AGREEMENT.

- The North American Free Trade Agreement, which eliminated most tariffs on
trade among Mexico, Canada, and the United States, went into effect on Jan. 1,
1994. Numerous tariffs, particularly those related to agriculture, textiles, and
automobiles, were gradually phased out between Jan. 1, 1994 and Jan. 1, 2008.
 ASSOCIATION OF SOUTHEAST ASIAN NATIONS FREE TRADE AREA.
- The Association of Southeast Asian Nations (ASEAN) is a regional organization of
10 Southeast Asian and Pacific Rim countries whose governments collaborate to
promote socio-cultural, economic, and political advancement in the region.
ASEAN is an official observer of Asia-Pacific Economic Cooperation (APEC), a 21-
member economic group that promotes free trade and sustainable development
in Pacific Rim countries.
 ASIA-PACIFIC ECONOMIC COOPERATION (APEC)
- The Asia-Pacific Economic Cooperation (APEC), is an economic group of 21
members, formed in 1989, with the primary goal of promoting free trade and
sustainable development in the Pacific Rim economies. The creation of APCE was
primarily in response to the increasing interdependence of Asia-Pacific
economies. Also, the proliferation of regional economic blocs, such as the
European Union (EU) and the, now defunct, North American Free Trade Area
(NAFTA), encouraged its formation.
 EUROPEAN UNION (EU)
- The European Union (EU) is a group of 28 countries that operates as a cohesive
economic and political block. Nineteen of the countries use the euro as their
official currency.

The EU grew out of a desire to form a single European political entity to end the
centuries of warfare among European countries that culminated with World War
II and decimated much of the continent. The European Single Market was
established by 12 countries in 1993 to ensure the so-called four freedoms: the
movement of goods, services, people, and money.

 ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT (OECD)

- The Organisation for Economic Co-operation and Development (OECD) is a group
of 34 member countries that discuss and develop economic and social policy.
OECD members are democratic countries that support free-market economies.

The Organisation for Economic Co-operation and Development (OECD) is

variously referred to as a think tank or monitoring group. Its stated goals include
fostering economic development and cooperation, fighting poverty, and
ensuring the environmental impact of growth and social development is always
considered. Over the years, it has dealt with a range of issues, including raising
the standard of living in member countries, contributing to the expansion of
world trade and promoting economic stability.

The OECD was established on Dec. 14, 1960, by 18 European nations plus the
United States and Canada. It has expanded over time to include members from
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;
 South America and the Asia-Pacific region. It includes most of the highly
developed economies.

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;