GLOBAL ECONOMY
The global economy refers to the interconnected worldwide
economic activities that take place between multiple countries.
Characteristics:
1. Globalisation - It describes a process by which national and
regional economies, societies, and cultures have become integrated
through the global network of trade, communication, immigration,
and transportation.
2. International trade - It is considered to be an impact of
globalisation. It refers to the exchange of goods and services
between different countries, and it has also helped countries to
specialise in products which they have a comparative advantage in.
3. International finance- Money can be transferred at a faster rate
between countries compared to goods, services, and people;
making international finance one of the primary features of a global
economy.
4. Global investment -This refers to an investment strategy that is
not constrained by geographical boundaries. Global investment
mainly takes place via foreign direct investment (FDI).
Dimensions:
* Globalization of trade of goods and services;
* The globalization of financial and capital markets;
* The globalization of technology and communication;
* The globalization of production.
Who controls the global economy?
Although governments do hold power over countries’ economies, it
is the big banks and large corporations that control and essentially
fund these governments.
How does the global economy work?
The functioning of the global economy can be explained through
one word —transactions. International transactions taking place
between top economies in the world help in the continuance of the
global economy. International trade includes the exchange of a
variety of products between countries.
Brief History
 Great Depression
* worst economic downturn in the history of the industrialized
world
* lasted from 1929 to 1939
* A depression is a sustained, a long-term downturn in economic
activity in on or more economies.
* Causes:
Over Production
High demand and prices during WWI
Demand and prices fall after war
Farmers could not pay back loans
Decrease in consumer spending
Rising prices, low wages
Overbuying on credit, large debts had to be paid off
Uneven distribution of income
Over speculation
Stocks bought on the hope of quick profit.
Buying on Margin – paying a small % of stock’s price and
borrowing the rest
High tariffs harm world trade.
 Bubble Burst
* Banks fail – people withdrew funds
* 1933 – 11,000 of nation’s 25,000 banks had failed
* Banks invested in stock market – could not repay loans
* Account not insured – millions lost their savings
 Domino Effect
*PEOPLE LOSE JOBS-BUSINESSES CLOSE DOWN-MORE PEOPLE JOBS
 World War II
* a global war that lasted from 1939 to 1945
* World War 2 worsen the Great Depression
 Bretton Woods Conference
* It was the gathering of 730 delegates from all 44 Allied nations to
regulate the international monetary and financial order after the
conclusion of World War II.
* A Joint Statement by Experts on the Establishment of an
International Monetary Fund” was published on April 21, 1944. On
May 25, 1944, invitation was sent from the US to the Allied
countries.
* Three institutions:
1. International Monetary Fluid
2. General Agreement on Tariffs and Trade
3. World Bank
 IMF
* is an organization of 189 countries
* Conceived on July 1944 and came into formal existence on 27
December 1945 after the 29 countries ratified the Article of
Agreement
* By the end of 1946, IMF has grown to 39 members
* March 1, 1947, the IMF began its financial operations and on 8th
day of May, France became the first country to borrow from it.
 Role of IMF (2 VIEWS):
1. John Maynard Kaynes - He imagined that the IMF would be
a cooperative fund upon which member states could draw to
maintain economic activity and employment through periodic
crises.
2. Harry Dexter White - He foresaw an IMF that functioned
more like a bank, making sure that borrowing states could
repay their debts on time.
 IMF’s Fundamental Mission:
1. Economic surveillance - Oversees the international
monetary system and monitors the economic and financial
policies of it’s 189 member countries.
2. Lending - Provides loans to member countries experiencing
actual or potential balance of payments problems to help
3. Capacity Development - To modernize economic policies
and institutions and train people.
World Bank
 The World Bank is an international development organization
owned by 187 countries.
 The Bank is also one of the world's largest research centers in
development. It has specialized departments that use this
knowledge to advise countries in areas like health, education,
nutrition, finance, justice, law and the environment.
 Another part of the Bank, the World Bank Institute, offers training
to government and other officials in the world through local
research and teaching institutions.
 The World Bank was established in 1944 to help rebuild Europe
and Japan after World War II. Its official name was the
International Bank for Reconstruction and Development
(IBRD). When it first began operations in 1946, it had 38
members.
 Without a place like the World Bank from which to borrow
money, the world’s poorest countries would have few, if any,
ways to finance much-needed development projects.
 The International Bank for Reconstruction and Development
 The International Development Association
 The International Finance Corporation
 Multilateral Investment Guarantee Agency (MIGA)
 International Centre for Settlement of Investment Disputes
(ICSID)
General Agreement On Tariffs And Trade
An international agreement superseded by World Trade
Organization in 1994, that minimizes barriers to international trade
by eliminating or reducing quotas, tariffs and subsidies.

MARKET INTEGRATION
- refers to the process of creating a unified marketplace where
goods, services, and capital can flow freely between countries or
regions.
- Integration shows the relationship of the firm in a market.
- Market integration occurs when prices among different location or
related goods following similar patterns in a long period.
 Market Integration can take many forms including:
- Reduction of trade barriers such as tariffs
- Adoption of a common currency
- Harmonization of regulatory standards
- Development of infrastructure to facilitate transportation and
communication
 Types of Market Integration:
1. Horizontal Integration
▪ This occurs when a firm or agency gains control of other firms or
agencies performing similar marketing functions at the same level
in the marketing sequence.
▪ In this type of integration, some marketing agencies combine to
form a union with a view to reducing their effective number and
the extent of actual competition in the market.
▪ In most markets, there is a large number of
agencies which do not effectively compete with
each other.
▪ This is indicative of some element of horizontal
integration.
▪ It leads to reduced cost of marketing.
▪ In this reduced competition possible.
▪ Effects of Horizontal Integration:
- Buying out a competitor in a time boundway to reduce
competition.
- Gaining larger share of the market and higher profits.
- Attaining economies of scale.
- Specializing in the trade.
▪ Advantages:
1) Lower costs.
2) Higher efficiency.
3) Increased differentiation.
4) Increased market power.
5) Reduced competition.
6) Access to new markets.
7) Economics of scale.
8) Economics of scope.
9) International trade.
▪ Disadvantages:
1) Destroyed value.
2) Legal repercussions.
3) Reduced flexibility.
2. Vertical Integration
▪ This occurs when a firm performs more than one
activity in the sequence of the marketing process.
▪ It is a linking together of two or more functions in the
marketing process within a single firm or under a
single ownership.
▪ This type of integration makes it possible to exercise
control over both quality and quantity of the product
from the beginning of the production process until the
product is ready for the consumer.
▪ It reduces the number of middle men in the marketing
channel.
▪ Arrangement of Vertical Integration:
a.) Forward Integration
- If a firm assumes another function of
marketing which is closer to the
consumption function, it is a case of forward
integration.
Example: wholesaler assuming the function
of retailing
b.) Backward Integration
- This involves ownership or a combination
of sources of supply.
Example: when a processing firm assumes
the function of assembling/purchasing the
produce from the villages.
c.) Balance Vertical Integration
- The third type of vertical integration is a
combination of the backward and the
forward vertical integration.
▪ Advantages:
1. It allows you to invest in assets that are
highly specialized.
2. It gives you more control over your business.
3. It allows for positive differentiation.
4. It requires lower costs of transaction.
5. It offers more cost control.
6. It ensures a high level of certainty when it
comes to quality.
7. It provides more competitive advantages.
▪ Disadvantages:
1. It can have capacity-balancing problems.
2. It can bring about more difficulties.
3. It can result in decreased flexibility.
4. It can create some barriers to market entry.
5. It can cause confusion within the business.
6. It requires a huge amount of money.
7. It makes things more difficult.
3. Conglomeration
▪ A combination of agencies or activities not
directly related to each other may, when it
operates under a unified management, be
termed a conglomeration.
▪ Effects:
- Risk reduction through diversification
- Acquisition of financial leverage
- Empire – building urge.
▪ Degree of Integration:
- To remove transaction costs
- Foster competition
- Provide better signals for optimal generation and
consumption decisions.
- Improve security of supply