Market Integration

Learning Outcomes:
At the end of the lesson, the students should be able to:
 Understand the concept of market integration: Students will be able to define market integration and
explain its significance in the context of economic globalization.
 Explain the role of international financial institutions in the creation of a global economy
 Explore the benefits of market integration: Students will explore the advantages and opportunities
that arise from market integration, such as increased trade, economies of scale, enhanced
competitiveness, and access to new markets.
 Examine the challenges of market integration: Students will analyze the challenges and potential
drawbacks associated with market integration, including the impact on domestic industries, potential
job displacement, and the need for regulatory frameworks to address issues such as unfair
competition and environmental concerns.
 Introduction
Look at the common products sold in your local grocery stores. Where are
they manufactured or made? Who marketed or distributed the product? Where
do the companies source their raw materials?
Most of the products sold in the market are either sourced from one country, or
imported and manufactured in another, and distributed worldwide.

Discussion of the assignment

• Check out the proliferation of call centers and business processing
outsourcing (BPO) companies in the Philippines. Most of these
companies cater to international consumers based in US, Australia,
New Zealand, and Europe. According to Philippine Statistics Authority
(2018), the Philippines has 851 BPO companies, more than half of
which are call centers (429). The Philippines is the call center capital
of the world, accounting to 18 percent of the global market share,
US$24.4 B and 7.5 percent revenue increase in the first quarter of
2018 (Sea Limited. n.d.).
 Market
integration
 These developments are due to increasing market integration, which has two
kinds – horizontal and vertical integration (Grossman & Hart, 1986). Horizontal
integration happens when a firm gains control of other firms performing similar
marketing functions at the same level in the marketing sequence.
• In the Philippines, an example of local market integration is when Landbank of
the Philippines acquired the Philippine Postal Savings Bank, for the latter to
focus on overseas Filipino worker clients (ABS-CBN News, 2017).
Vertical integration happens when one company owns the operations and
products from one stage to the other along the supply chain. For example, an
iron mining company operates a steel manufacturing firm. Another instance is
when Mcdonald’s owns the land where its supplies are located to avoid the cost
of the lease. In this chapter, we will discuss the role of different institutions like
international financial institutions and global corporations in market integration.
Market Integration
Is a process by which economies are becoming more
interdependent and interconnected in terms of commodity flows
including externalities and spillover of impacts (Genschel and
Jacktenfuchs, 2017).
When prices among different locations or related goods follow the
same patterns over a long period of time, market integration exist.
Similarly, when groups of prices often move proportionally to each
other and when this relation is very clear among different markets it is
said that the markets are integrated. Hence, it could be concluded that
market integration is an indicator that explains how much different
markets are related to each other.
 Market Integration

Market integration refers to the process of linking separate markets together to create a
unified and interconnected economic system. It involves the removal or reduction of barriers,
such as tariffs, quotas, and trade restrictions, that hinder the free flow of goods, services, capital,
and labor across national boundaries. Market integration facilitates increased trade, investment,
and economic cooperation among countries, leading to the development of a global
marketplace.

In the context of economic globalization, market integration holds great significance. It allows
countries to take advantage of comparative advantages, specialize in the production of goods and
services in which they have a competitive edge, and participate in global value chains. Market
integration promotes efficiency by encouraging competition, innovation, and the efficient
allocation of resources. It also fosters economic growth, raises living standards, and expands
consumer choices by providing access to a wider range of products and services from around the
world.
Role of International Financial Institutions in the Creation of Global Economy

International financial institutions are global financial institutions that

support a country’s economic growth through support that is loans,
technical assistance to governments and now other private sectors
(Wood, 2019).
 An international financial institutions is chartered by more than one
country and therefore are subjects to international law. Its owners or
shareholders are generally national governments, although other
international institutions and other organizations occasionally figure
as shareholders.
International Financial Institutions
International Monetary Fund (IMF)
World Bank (WB)
European Investment Bank (EIB)
Islamic Development Bank (IDB)
Asian Development Bank (ADB)
European Bank for Reconstruction and Development (EBRD)CAF-
Development Bank of Latin America
Inter-American Development Bank Group (IADB)
African Development Bank (AfDB)
Asian Infrastructure Investment Bank (AIIB)
The International Financial Institutions (IFIs) are:
1. International Monetary Fund (IMF) is an international organization with 183
member countries that promotes international monetary cooperation and
exchange stability to foster economic growth and high employment and to
provide short-term financial assistance to countries to help ease balance of
payments adjustment (IMF, 2019).
The primary purpose of the IMF is to provide global monetary cooperation
and international financial stability. The institution, created in 1945, was
design to monitor the system of pegged or fixed exchange rates. In this
system, official exchange rates of currencies were related to gold and US.
Dollar. It was designed to prevent the trade wars that occurred during the
interwar period due to competitive devaluations of states of their currencies
(Cohn, 2011).
When states suffer from balance-of-payments deficits, they reduce
the value of their currencies to boost exports with cheaper products
and decrease imports. A balance-of-payment deficits occurs when a
country spends more than it takes in.
 The role of IMF is to provide short-term loans to prevent devaluation
and retain the state’s fixed exchanged rate in instances of the
temporary balance of payment deficits.
 The institutions was designed for the mandate of ensuring
international financial cooperation and reinforces international trade
(Benczes, 2014).
International Financial Institutions
2. World Bank (WB) The World Bank is an international development
organization owned by 187 countries. Its role is to reduce poverty by
lending money to the governments of its poorer members to improve
their economies and to improve the standard of living of their people.
The World Bank supports investments in countries that underpin
long-term growth and that help to meet the needs of their citizens. We
work with policy makers to develop markets, institutions, and
economies that are stable, equitable, and efficient
International Financial Institutions
3. European Investment Bank (EIB) The European Investment Bank (EIB) furthers
the objectives of the European Union by providing long-term project funding,
guarantees and advice. It supports projects both within and outside the EU. Its
shareholders are the Member States of the EU.
4. Islamic Development Bank (IDB) The purpose of the Bank is to foster economic
development and social progress of member countries and Muslim communities
in non-member countries individually as well as jointly in accordance with the
principles of Shari'ah i.e., Islamic Law.
5. Asian Development Bank (ADB) provides loans, grants and technical assistance
to its developing member countries, to the private sector and through public-
private partnerships to support the building and maintenance of infrastructure.
The majority is in water, energy, transport, urban development, and information
and communications technology
International Financial Institutions
6. European Bank for Reconstruction and Development (EBRD) is a
development bank that provides project financing for banks, industries
and businesses, both new ventures and existing companies. It prioritizes
support for countries in Central and West Asia, and North Africa
7. Development Bank of Latin America a development bank committed
in improving the quality of life for all Latin Americans and Caribbeans.
Their actions promote sustainable development and regional
integration. Aim to convert there selves into the green and blue bank,
and the one responsible for the economic and social reactivation of the
region.
International Financial Institutions
8. Inter-American Development Bank Group (IADB) The IDB is the most
important multilateral source of development financing for Latin America and
the Caribbean. It aims to reduce poverty and inequality and to promote
sustainable economic development in the region.
9. African Development Bank (AfDB) As the premier development finance
institution on the continent, the AfDB's mission is to help reduce poverty,
improve living conditions for Africans and mobilize resources for the continent's
economic and social development.
10. Asian Infrastructure Investment Bank (AIIB) meets its commitment to
actively support infrastructure projects that contribute to climate change
mitigation, adaptation and resilience, and reinforces its mission to promote
sustainable infrastructure development in Asia and beyond.
Membership Composition of IFIs
1. Only sovereign countries are admitted as member owner
2. Broad country membership to include borrowing developing
countries and developed donor countries
3. Membership in regional development banks include countries
around the world as members (not limited to countries from the
region)
4. Has its own independent legal and operational states
Other examples of International Organizations that Govern Globalization

World Trade Organization (WTO) – regulates international trades,

ensures smooth flow of trade and provides a forum for negotiations
for trade agreement among countries and regions of the world
(International Monetary Fund, 2019)
 World Health Organization (WHO) – responsible for global
researchers on medicines and vaccines including the World Health
Report and Survey
 International Labor Organization (ILO) – deals with labor problems
and international labor standards and social protection for workers
Other examples of International Organizations that Govern Globalization

UNESCO – contributes to peace and security by promoting international

collaboration through educational, scientific, and cultural reforms
 Organization for Economic Cooperation and Development (OECD) –
thirty five member countries aim to stimulate economic progress and
world trade by providing a platform to compare policy experiences and
identify good practices in domestic and international economic policies
and programs of its members.
 Food and Agriculture Organization of the United Nations (FAO) – leads
international efforts to defeat hunger, eliminate food insecurity and
malnutrition, and increase resilience of livelihoods and food.
Global Corporation
While many use “global” in the same way as international when it comes describing a
business some analysts make distinctions between how each operates. On a basic
level, a global corporation is one that operates in more than one country. Particularly
in the United States, the term can mean different things to different context, with the
characteristics of a global corporation varying accordingly. (Craig Berman, 2017).
Business analyst and academics, such as the groundbreaking Michael Porter at
Harvard University, defined global business more narrowly and distinguish them from
other operations overseas. He defined a global business as one that maintains a strong
headquarters in one country, but has investments in multiple foreign locations. Such
investments may involve direct investments in foreign assets, such as manufacturing
facilities or sales offices. The headquarters generally is its home country, through some
moves to more favorable regulatory or taxation locations over time.
 These global entities, IFIs and global corporations, play a significant role
in global wealth creation and distribution, including global economic
development (Neubauer, 2014). However, the significant growth of IFIs and
global corporations is complicated by ever-dynamic context and patterns.
These trends include global inequality, system stability and viability of the
global financial system and climate issues, and issues on human security.
Although IFIs have a stronger societal development outlook, they have a
larger responsibility to safeguard against unintended negative outcomes of
some of their investments and to balance rapid economic growth with
social well-being and ensuring environmental health. Similarly, global
corporations need to embrace that their impact to society and environment
goes beyond profit, products, and employment but more so to social
development and ensuring environmental integrity in the midst of their
operations and expansion (Neubauer, 2014).
 Market Integration
The European Union (EU) and the adoption of the Euro as a single currency have brought
several benefits to its member states. Here are some key advantages
Enhanced Trade and Economic Integration: The Euro eliminates currency exchange costs
and fluctuations within the Eurozone, making trade between member countries more
efficient and less costly. It has also stimulated cross-border investments and encouraged
economic integration.
Price Transparency and Competition: The Euro facilitates price transparency across member
states, enabling consumers to compare prices easily and promoting competition. This has
led to increased efficiency and reduced price differentials within the Eurozone.
Increased Financial Integration: The Euro has facilitated greater financial integration within
the Eurozone, promoting cross-border banking and capital flows. This integration has led to
more efficient financial markets, enhanced access to credit, and improved risk-sharing
mechanisms.
Market Integration
Increased Foreign Direct Investment (FDI): The Euro provides a stable and
attractive investment environment, attracting higher levels of FDI into the
Eurozone. This has contributed to economic growth and job creation in member
countries.
Improved Monetary Policy and Stability: The European Central Bank (ECB)
oversees monetary policy for the Eurozone, which promotes stability and
consistency in interest rates and inflation across member states. This has helped
maintain macroeconomic stability and reduce exchange rate risks.
Elimination of Exchange Rate Uncertainty: The Euro eliminates exchange rate
volatility between member states, reducing uncertainty for businesses and
investors. This stability encourages long-term investment planning and fosters
economic growth.
Asian Integration
Established on August 8, 1967 in Bangkok Thailand
Founding members
Indonesia
Malaysia
Philippines
Singapore
Thailand
Additional members
Brunai joined on January 7, 1984; Vietnam on July 28, 1985; Lao PDR and
Myanmar on July 23, 1997 and  Cambodia on April 30, 1999.
Asian Integration
ASEAN : ASEAN ECONOMIC COMMUNITY (AEC) 2025 
The ASEAN Economic Community (AEC) Established in 2015, Kuala Lumpur,
Malaysia is a regional economic integration initiative by the Association of
Southeast Asian Nations (ASEAN). The AEC envisions the creation of a single
market and production base that will enhance economic cooperation and
integration among ASEAN member states. The AEC Blueprint 2025 outlines the
strategic measures and targets for achieving the goals of the AEC by the year 2025.
Objectives: The AEC 2025 aims to establish a highly integrated and cohesive
economy among ASEAN member states. The objectives include creating a single
market and production base, facilitating the movement of goods, services, and
investments, promoting competition and innovation, enhancing connectivity and
regional economic integration, and developing a resilient, inclusive, and
sustainable economic community.
 Asian Integration
ASEAN Community Vision 2025
The ASEAN Community Vision 2025 aims to create a people-centered and
people-oriented community that is politically cohesive, economically
integrated, socially responsible, and environmentally sustainable. It envisions
an ASEAN community that is resilient, inclusive, and dynamic.
ASEAN Political Security Community 2025
The APSC aims to promote political and security cooperation among ASEAN
member states, ensuring peace, stability, and resilience in the region.
ASEAN Socio-Cultural Community (ASCC) aims to promote social progress,
cultural development, and human resource capacity-building within ASEAN.
Asian Economic Community
5 Core Principles ASEAN Single Market and Production Base:
1. Free flow of goods This principle aims to create a seamless and efficient
flow of goods within the ASEAN region. It involves eliminating tariff and
non-tariff barriers, harmonizing customs procedures, and enhancing trade
facilitation measures. The goal is to promote trade liberalization and
enhance market access for goods produced within ASEAN.
2. Free flow of services This principle focuses on liberalizing trade in services
within ASEAN. It involves reducing restrictions on the movement of service
providers, facilitating the recognition of professional qualifications, and
promoting cross-border trade in services. The aim is to enhance the
competitiveness and efficiency of service sectors within the region.
Asian Economic Community
3. Free flow of investment This principle aims to attract and promote
investment flows within ASEAN by creating a conducive and transparent
investment environment. It involves removing investment barriers,
facilitating investment protection and dispute settlement mechanisms, and
promoting investment promotion and facilitation measures. The goal is to
stimulate investment activities and promote economic integration within the
region.
4. Free flow of capital This principle focuses on facilitating the movement of
capital within ASEAN. It involves liberalizing capital flows, harmonizing capital
market regulations, and enhancing financial integration within the region.
The objective is to deepen financial markets, improve access to capital, and
promote financial stability and resilience within ASEAN.
Asian Economic Community
5. Free flow of skilled labor This principle aims to promote the mobility
of skilled labor within ASEAN. It involves facilitating the movement of
professionals, skilled workers, and talents across borders within the
region. Efforts are made to enhance the recognition of qualifications,
streamline visa and work permit procedures, and promote mutual
recognition arrangements for professional services. The goal is to
address labor market demands, enhance regional competitiveness, and
promote human resource development within ASEAN.
The World’s Largest Economies based on data from the
International Monetary Fund, 2018 as cited in Smith
Country Value (in trillions)
1 United States 20.4
2 China 14
3 Japan 5.1
4 Germany 4.2
5 United Kingdom 2.94
6 France 2.93
7 India 2.85
8 Italy 2.18
9 Brazil 2.14
10 Canada 1.8