Module/Lesson no.

3
Market Integration

INTRODUCTION:
Market integration allows price signals to be transmitted from one market to another. When
markets are well-integrated, prices become more stable, and householdfood security is likely to
be improved as poor Households can obtain food at more affordable prices. Well integrated
markets can help avoid localized food shortages. This section examines how global market
becomes coherent through local corporations and international financial institutions.

CONNECT:
INTERNATIONAL FINANCIAL INSTITUTIONS
Inmanypartsoftheworld, InternationalFinancialInstitutions(IFIs)playamajorrole inthesocial and
economic development programs of nations with developing or transitionaleconomies. This role
includes advising on development projects, funding and assisting intheir implementation with
the following goals and objectives:

 To reduce global poverty and improve people’s living conditions and standards.
 To support sustainable economic social, and institutional development; and
 To promote regional cooperation and integration.
IFIs achieve these objectives through loans, credits and grants to national government.
Suchfunding is usually tied to specific projects that focus in economic and socially
sustainabledevelopment. It also provides technical and advisory assistance to their borrowers
andconduct extensive research and development issues.

HISTORY OF GLOBAL MARKET INTEGRATION

The nineteenth century saw substantial advances in international market integration, and
the creation of a truly world economy. Technological advance was critical in this. The railroad
locomotive and the marine steam engine revolutionized world transport from the 1830s
onwards. Steamships connected the world's ports to each other, and from the ports the railroads
ran inland, creating a new and faster world transport network. Freight rates fell, and goods could
be carried across the world to ever more distant markets and still be cheaper in those faraway
places than the same item produced locally. Linked closely to these changes was the electric
telegraph, whose lines often ran along the new railroad networks. Telegraph systems were
established in most countries, including the major market of British India, until 1854. Beginning
with the first transatlantic cable, which was laid by steamship in 1866, these existing domestic
telegraph systems were linked together by marine cables. The resulting international
information network was crucial in communicating details of prices and price movements,
reducing the cost of making deals and transactions. An infrastructural change of major
significance came in 1869 with the opening of the Suez Canal, which linked the Mediterranean
Sea by way of Egypt to the Red Sea: now ships sailing from Europe to Asia could take the new
shortcut rather than sail all the way around Africa. Immediately Asia was some 4,000 miles closer
to Europe in transport terms, and freight costs fell. Yet the low efficiency of early steamships
meant that many bulk cargoes such as rice still were carried to Europe from Asia by sail around
the Cape of Good Hope. Technological change in the shape of steel hulls and steel masts made
sailing ships larger and more efficient, and they continued to be active until the more efficient
triple-expansion engine finally drove the sailing ships from the oceans during the last quarter of
the nineteenth century.
In1944,it became clear that the war was coming to an end, and the western Allied powers decide
to again to attempt building a new world order. Meeting at the Mount WashingtonHotel in
Bretton Woods, New Hampshire, the US and English representatives, H.D. Whiteand J.M. Keynes
set out createinstitutions so to prevent the recurrence of the conditionswhich led to World War
II. They proposed the creation of three organizations, with eachorganizationplayingarole
inthesmoothfunctioningofglobaleconomy.Thesewere:

 The International Bank for Reconstruction and Development (IBRD or the WorldBank)
whose original mandate was to rebuild the war-torn economics of Europe andAsia. It has
evolved into the world’s most influential lender of foreign aid todeveloping nations.

 The International Monetary Fund (IMF) whose primary purpose was to maintain afixed
exchange rate system known as the Bretton Woods System. Recently it plays ahighly
visible role in the aftermath of theEastAsianCrisis.
  The International Trade Organization (ITO), which was not ratified by the USCongress and
consequently did not become a reality. However, its primary function
ofliberalizingworldtradewasgiventotheGeneralAgreementonTariffsandTrade(GATT).
The post-WorldWarII era marked by two geopolitical events, the ColdWar andthe
periodofdecolonization. The latter saw the birth of many new nations as the European
powersdecolonized. This means that many developing countries are relatively young,
especiallythose in Africa, the Middle East and South Asia. These newly liberated countries have
tochoose which economic structure to adopt to achieve their developmental goals. These
newnations adopted government-controlled economies that relied on import
substitutionindustrialization strategies to achieve industrialization. Import substitution means
that thesecountriesfosteredthegrowthof
industriesthatproducedgoodsandwerebeingimported,usually from
formercolonialist.Theoilpriceshocksof1970’sforcedmanyAmericansforthefirsttimetorealizethatth
eUSeconomy was not independent from the rest of the world. The recessions following the
oilcrises of 1973 and in 1979 led both recession and inflation simultaneously. The oil priceshocks
set into motion events that are still present in today’s global economy.On the other hand, most
developing countries saw the benefits of becoming linked to theglobaleconomy. Industrial
nations were no longer viewed as neo-colonial exploiters, but asmarkets for developing
countries goods. Further integration of capital markets led toemerging market phenomena. The
global movement towards more market friendlyeconomic markets, both internally and
externally, have created a world of growinginterdependence. The events across the globe are
transmitted everywhere through theglobal economy.

ATTRIBUTES OF GLOBAL CORPORATIONS

The rise of global corporations reflects globalized market integration. TheTransnational
Corporations (TNCs) and Multinational Corporation (MNCs) are no longer
limitedtotheirhomecountries.Theyareabletoexpandtheirinfluence toother continentsand
countries.
These global corporations have common attributes. Neubauer (2014)identifies three of them;

 an agent of desired economic development,

 an economicprominence, and
 a very powerful entity that can create a crisis.
These corporations may hittheir target of economic development by making their consumer
products available in manyparts of theworld.
Finally, international financial institutions play an important role in the social and
economicdevelopment programs of developing and transitional countries. They are instrumental
inthe functionality of the global economy which is reliant on global corporations.