1ST YEAR - 2ND SEMESTER

THE CONTEMPORARY WORK

PRELIM: LESSON 3

Market Integration

Globalization Effect
- foreign companies are being situated or place in other countries
- this companies creates globalization effects

Market Integration
- placing these foreign companies to other countries is an example of market integration
- plays a vital role in globalization

MARKET INTEGRATION : Definition

 All contraction parties

- Is an exchange of goods and services because it is more advantageous for the two countries to create
exchange
 Comparative Advantage Theory
- Country A is efficiently producing this kind of product then country A would tend to export this
product to Country B. then Country B import this product
 Single Market
- it allows the export or exchange of goods and services for such product from a separate market and
now in a single market.
- generate single market for such product since it is advantageous for those countries that are involved
in trading.

Global Market Integration in the 20th Century

By: Dunning, J. H., & Lundan, S. M. (2008)
Describe into 5 Stages

Stage 1: 1900 - 1917

 Majority of the developed nations were liked to the gold standards in 1900
- stimulates or creates more trading
- because this will stimulates international trade and investment and even migration because of easier
trading
  Classical Economic School of Thought: Comparative Advantage and Specialization (David Ricardo)
 Comparative Advantage Theory
- let to specialization of products that are efficiently produce by a certain country
- most influential classical theorist in international trade
- applies principle of specialization

 Rapid spread of Technology

 Mass Production and Consumption
 Invention of Automobiles led to new production and new consumption patter

Stage 2: 1918-1940s
Great Depression
- Ended when there was consumption or expenditure of government. It creates economic activity

World War 2 - presence

- generate economic activities and that government creates economic activity and that ends the
great depression.
 Defensive market-seeking investment I=with adoption of Keynesian Economic Policies.
- Growing role of foreign direct investment
 Growing role of foreign direct investment (FDI) in some economies and started to have branch plants of
foreign (later to be called multinational) enterprise
Foreign Direct Investment - it is an investment or creation of business in one country which is founded
or owner is from the other country
Companies also knows as multinational corporation
Example: Unilav, Coca-Cola

Stage 3: 1945 - Late 1960s

 Bretton Woods
- agreement intensify the market integration because it creates more liberalization in trading and it
loosens the trade restrictions
 Most dramatic impact on trade liberalization
 1950s Economic Boom
- because port world war 2
- these are reconstructions that creates economic activity
Economic Activity there is Production as well as consumption.

Stage 4: From Late 1960s to Mid- 1980

 New generation of Technological discoveries (automation and computerisation) and telecommunication
- boosts production
- surplus of production
- export
- market integration
 Oil Crises (1973)
- majority companies utilizing oil as energy
- decrease on the level of production and so it needs to affect the growth and production
- give signal that market of one country affects or integrates to other country
 Most developing countries were relaxing some of the restrictive regulatory structure towards inbound
investment (Mid-1980)
  Special Economic Zones
- stimulates the economy and of coursethe globalization increase
- creates more liberation on foreign direct investment
Investment
- creates income to a certain country
- call A ripple effects / multiplier effects meaning even if a small amount is being injected (income or
investment) in a certain country. This investment will not have an equal effect
EXAMPLE: Investment 1 million, the effect of that is more than 1 million.

Stage 5: Mid - 1980s to 2000

 Rapid pace of scientific and technological development
 Strengthening the Vertical Specialization/ Cross-border organization

 Two types of Market Integration

1. Vertical Integration
- play more multiplier effects
- because it generates income in different countries
Lengthening
- generates production and income
- And increased market integration
2. Horizontal Integration
- reproduction is being distributed to different countries
Gold Standard
- increase exportation
- therefore it increase market integration

Vertical Specialization / Era of SEZs

- increase exportation
- therefore it increase market integration
- Slowdown of exportation because of oil crises

- this graph shown the trend of kind of goods being exported across 1900s to 2011

 Exportation of agricultural products decrease

 Exportation of manufacturing product increase 1900s to 2011
- due to technological advancement and specialization
 Multinational Corporation

“Multinational Corporation plays vital role in trade liberation”

By Vaara, E Tienari, J, & Koveshnikov, A. (2019)

 Creates foreign direct investment

 Creates market integration
- in view of producing product from other countries

 A way on how we look at the activities of multinational Corporation

 Change in foreign direct Investment
- due to activities of multinational Corporation
Cross border mergers and Acquisitions
- merging two countries in different countries
- merging multinational corporation that are situated from different countries

3 International Financial Institution and the global economy

 Plays a vital role in the globalization

 Gross Domestic product of countries

 1992
- most of countries are fluctuated
- decrease of GDP growth
- because of problem with UK exchange rate mechanism crises

 1997
- fluctuation of countries
- due to Asian crises

 2008/9
- creates a fluctuation of the gross domestic product
- most all of the countries in the world
 International Financial Institutions
- to offset certain crises
- to minimize the effect to one country
- how can they help one country , is that they can provide loans and credits
- in order to achieve poverty
- in order to promote regional cooperation and integration
- support sustainable economic development