Market Integration

Friday, March 8, 2024 5:03 PM

International Financial Institutions

• Are Institutions that provide financial support via grants and loans for economic and social development
activities in developing countries.
• Examples: World Bank, International Monetary Fund, European Investment Bank, and more.
• They Play significant role in privatization and regulation of public utilities.

The World Bank

• is an international organization that provides financing, advice, and research to developing nations to help
advance their economies.

Goals of World Bank

 End extreme poverty by decreasing the percentage of people living on less than $1.90 a day to no more than
30%
 Promote shared prosperity by fostering the income growth of the bottom 40% for every country

The Five Organizations of World Bank

 The International Bank for Reconstruction and Development (IBRB) - It lends to governments of middle-
income and creditworthy low-income countries. It offers loans and financial services to support a wide range
of development initiatives, such as infrastructure projects, education, healthcare, and economic reforms. The
initial mission of IBRB is to give loans to the countries that got devastated of world War 2.
○ The International Finance Corporation (IFC) - They help developing countries achieve growth by financing
investment, mobilizing capital in international Financial markets, and providing advisory services to
businesses and governments.
○ The International Development Association (IDA) - It provides interest low or free loans, called credits, and
grants to government of the poorest countries.
○ The international Center for Settlement of Investment Disputes (ICSID) - It provides international facilities for
conciliation and arbitration of investment disputes.
○ The Multilateral Investment Guarantee Agency (MIGA) - Promote foreign direct investment into developing
countries to support economic growth, reduce poverty, and improves lives.

The World Bank Group consists of several institutions, but two organizations often considered the backbone of the
World Bank are the International Bank for Reconstruction and Development (IBRD) and the International
Development Association (IDA). These two institutions, along with other entities within the World Bank Group,
work collectively to address global development issues and promote sustainable economic growth.

Where does World Bank gets its money?

○ Fees paid by its 189 members countries, based on their economic size and interest.
○ Earnings on its investments and interest payments from borrowing countries.
○ Contributions made by its members, especially the wealthier ones, to support specific funds and initiatives.
○ Borrowing on international capital markets, using its financial reserves and credit rating as security.

International Monetary Fund

 is an organization of 190 countries, working to foster global monetary corporation, secure financial stability,
facilitated international trade, promote high employment and sustainable economic growth and reduce
poverty around the world.
 During its conceiving, the 44 countries at that conference sought to build a framework for economic
cooperation to avoid the repetition of the great depression of the 1930s
 IMF Financial Operations "Quota"
○ An IMF quota is a financial commitment made by a member country to the International Monetary
Fund (IMF). It represents the member's financial contribution to the IMF's resources and is a key factor
in determining its voting power, access to IMF financing, and overall involvement in the institution. The
IMF uses quotas to determine the financial and voting status of its member countries.

Missions of International Monetary Fund

1. Surveillance - IMF oversees the international monetary system and monitors the economic and financial
policies of its 190 member countries.
2. Capacity Development - They provide technical assistance and training to help member countries design and
implement economic policies that foster the stability and growth by strengthening their institutional capacity
and skills.
3. Lending
○ Where does the IMF get its money for lending?
 Quotas are determined based on the relative size of a country's economy in the global context.
When a country joins the IMF, it subscribes to its initial quota. Quotas are paid in a combination
of reserve assets (such as foreign exchange or gold) and the member country's own currency.
 Borrowing - the IMF can also supplement its resources through borrowing arrangements.
□ The New Arrangements to Borrow (NAB) is a set of credit arrangements between the IMF
and a group of member countries or institutions. It serves as a supplementary source of
funding in case the IMF's resources are deemed insufficient.
□ The IMF can also enter into Bilateral Borrowing Agreements with individual member
countries. These agreements provide additional resources that the IMF can use in
exceptional circumstances.

What is the G20? The group of 20 is made up of 19 of the world's biggest economies, as well as the European
Union. It was formed in 1999 to discuss policy matters and financial stability. These countries account for 85% of
global GDP.
1. Argentina
2. Australia
3. Brazil
4. Canada
5. China
6. France
7. Germany
8. India
9. Indonesia
10. Italy
11. Japan
12. Mexico
13. Russia
14. Saudi Arabia
15. South Africa
16. South Korea
17. Turkey
18. United Kingdom
19. United State
20. European Union

Market Integration
 is the process of unifying separate and distinct markets into a single cohesive economy, allowing for free
movement of goods, services, and capital.
○ What is the difference between Market integration and Economic integration? market integration is a
 subset of economic integration, focusing specifically on the interconnectedness of markets, while
economic integration encompasses a wider array of collaborative efforts and policy harmonization
beyond just market-related aspects.

Forms/ Stages of Integration:

This reflects different level of collaboration and coordination between countries in their pursuit of deeper economic
cooperation
1. Preferential Integration
a. Preferential integration refers to a situation where countries agree to reduce trade barriers and grant
preferential treatment to each other's goods and services.
b. This often takes the form of preferential trade agreements or arrangements where member countries
provide each other with better trading conditions than those offered to non-members.
c. It's a step towards deeper economic integration but doesn't necessarily involve a comprehensive
removal of all trade barriers.

2. Free Trade Area

a. In a free trade area, member countries agree to eliminate or significantly reduces tariffs and quotas on
goods and services traded among them.
b. Each country maintains its own trade policies with non-member countries.
c. The goal is to promote the free flow of goods and services among member nations, fostering economic
efficiency and specialization.
d. Example: The North American Free Trade Agreement (NAFTA), which has been replaced by the United
States-Mexico-Canada Agreement (USMCA), is an example of a free trade area.

3. Custom Union
a. A customs union builds on the concept of a free trade area but adds a common external tariff.
b. Member countries agree not only to eliminate tariffs and quotas on trade within the union but also to
adopt a common external tariff against non-member countries.
c. This allows for a unified approach to trade with the rest of the world.
d. Example: The European Union (EU) started as a customs union and evolved into a deeper form of
economic integration.

4. Common Market
a. A common market takes the integration process a step further by not only eliminating trade barriers
but also harmonizing various economic policies, including labor and capital mobility.
b. In a common market, factors of production can move freely across borders, creating a more unified
economic space.
c. Example: The European Economic Community (EEC), a precursor to the EU, aimed to establish a
common market among its member countries.

5. Economic Union
a. An economic union represents the highest level of economic integration.
b. It involves the complete harmonization of economic policies, including monetary policy and, in some
cases, a common currency.
c. Member countries aim to achieve a high degree of economic convergence and coordination.
d. Example: The European Union, particularly the Eurozone, is an example of an economic union. Member
countries in the Eurozone share a common currency (the euro) and coordinate monetary policy through
the European Central Bank.

The European Integration

 European integration refers to the process of political, economic, and social collaboration among European
countries, with the aim of fostering cooperation, reducing conflicts, and achieving common goals.
 It was the first steps were to foster economic cooperation: the idea being that countries that trade with one
 another become economically interdependent and so more likely to avoid conflict. The result was the
European Economic Community (EEC), created in 1958.

European Union is the aftermath of European integration with 27 members at the moment.
1. Austria
2. Belgium
3. Bulgaria
4. Croatia
5. Cyprus
6. Czech Republic
7. Denmark
8. Estonia
9. Finland
10. France
11. Germany
12. Greece
13. Hungary
14. Ireland
15. Italy
16. Latvia
17. Lithuania
18. Luxembourg
19. Malta
20. Netherlands
21. Poland
22. Portugal
23. Romania
24. Slovakia
25. Slovenia
26. Spain
27. Sweden

Legal Basis of European Union

The legal basis of the European Union (EU) is established through a series of treaties that have been adopted and
ratified by the member states. These treaties provide the legal framework for the functioning of the EU, outlining
its objectives, institutions, decision-making processes, and the distribution of powers between the EU and its
member states. The primary treaties that form the legal basis of the European Union are as follows:

1. Treaty of Paris (1951) - This treaty established the European Coal and Steel Community (ECSC), which aimed
to integrate the coal and steel industries of six founding member states: Belgium, France, Italy, Luxembourg,
the Netherlands, and West Germany. The ECSC laid the groundwork for further European integration.
2. Treaty of Rome (1957) - The Treaty of Rome established two additional European Communities: the
European Economic Community (EEC) and the European Atomic Energy Community (EURATOM). The EEC
aimed to create a common market among member states, promoting the free movement of goods, services,
capital, and labor. The Treaty of Rome is considered a cornerstone in the establishment of the EU.
3. Merger Treaty (1965): The Merger Treaty merged the executive bodies of the three European Communities
(ECSC, EEC, and EURATOM) into a single set of institutions. This aimed to streamline decision-making
processes and increase efficiency.
4. Single European Act (1986): The Single European Act was a significant amendment to the existing treaties,
aiming to complete the single market by 1992. It introduced new policies and reforms to enhance economic
integration and cooperation.
5. Treaty on European Union (Maastricht Treaty, 1992): The Maastricht Treaty established the European Union
as a political and economic union. It introduced the concept of European citizenship, created the framework
 for the Economic and Monetary Union (EMU), and outlined the Common Foreign and Security Policy (CFSP).
The treaty also led to the creation of the European Central Bank and the euro currency.
6. Treaty of Amsterdam (1997): The Amsterdam Treaty made several amendments to the existing treaties,
focusing on improving the efficiency of EU institutions, expanding cooperation in justice and home affairs,
and enhancing the role of the European Parliament.
7. Treaty of Nice (2001): The Nice Treaty aimed to reform the EU's institutions to accommodate the
enlargement of the union by introducing changes to the voting system and the composition of the European
Commission.
8. Treaty of Lisbon (2007): The Lisbon Treaty further amended the previous treaties to enhance the efficiency
and democratic legitimacy of the EU. It introduced the European Council President and the High
Representative of the Union for Foreign Affairs and Security Policy. The Treaty of Lisbon also strengthened
the role of national parliaments and citizens in the decision-making process.

Single Currency: Euro

The Euro (€) is the official currency of the Eurozone, a monetary union within the European Union (EU) that consists
of countries that have adopted the euro as their official currency. The Eurozone countries share a common
monetary policy, and the Euro is used for most transactions within the region.
 It was introduced on January 1, 1999 as accounting currency. On January 1, 2002, Euro banknotes replaced
the former national currencies of participating countries.
 The adoption of the Euro aims to facilitate cross-border trade and economic integration, eliminate exchange
rate risks within the Eurozone, and promote price transparency.
 Issues such as sovereign debt crises have highlighted the complexities of managing a monetary union without
a fully integrated fiscal policy.

Advantages of single currency:

1. People no longer need to change money when traveling or doing business within the euro area, saving time and
transaction costs.
2. It costs much less (or nothing at all) to make cross-border payments.
3. Consumers and businesses can compare prices more easily, which encourages businesses charging higher prices
to bring them down. It encourage competition.

Disadvantages of single currency:

1. Loss of monetary policy - monetary policy could not be enacted on a country-by-country basis. Monetary policy
involves decisions about interest rates, money supply, and other tools to manage the economy. For example, if one
country is experiencing high inflation while another faces economic recession, they cannot independently adjust
interest rates to suit their needs.
2. Global monetary policy - Implementing a single monetary policy across multiple countries can be challenging,
especially if these countries have diverse economic conditions. The one-size-fits-all approach may not be suitable
for all countries.
3. Loss of national identity - a single country would no longer have control over their own currencies. Giving up a
national currency can be perceived as a loss of a tangible aspect of national identity.

A union of human rights and equality

One of the EU's main goals is to promote human rights both internally and around the world. Human dignity,
freedom, democracy, equality, the rule of law and respect for human rights: these are the core values of the EU.

ASEAN Integration
 The Association of Southeast Asian Nations (ASEAN). ASEAN was founded on August 8, 1967, with the signing
of the Bangkok Declaration by Indonesia, Malaysia, the Philippines, Singapore, and Thailand. The organization
has since expanded to include ten member countries in Southeast Asia.
○ The five Foreign Ministers who signed it – Adam Malik of Indonesia, Narciso R. Ramos of the
Philippines, Tun Abdul Razak of Malaysia, S. Rajaratnam of Singapore, and Thanat Khoman of Thailand –
 would subsequently be hailed as the Founding Fathers of ASEAN.
 The integration process within ASEAN aims to foster regional cooperation and enhance the collective strength
of member states. It covers various dimensions, including economic integration, political and security
cooperation, and socio-cultural collaboration.

ASEAN Economic Community

The ASEAN Economic Community (AEC) is a regional economic integration initiative established by the member
states of the Association of Southeast Asian Nations (ASEAN). It was officially launched on December 31, 2015, with
the goal of creating a single market and production base within ASEAN. The AEC aims to promote economic
integration, facilitate the free flow of goods, services, investment, and skilled labor, and enhance the
competitiveness of the ASEAN region as a whole.

Five Interrelated and mutually reinforcing characteristics of ASEAN Economic Community:

1. Highly integrated and cohesive economy
2. A Competitive, innovative and dynamic ASEAN
3. Enhanced connectivity and sectoral cooperation
4. A resilient, inclusive, people – oriented, and people – centered ASEAN
5. A global ASEAN

The AEC Blueprint outlines the strategic measures and actions to be taken to achieve the objectives of the AEC. It is
based on four pillars: (Four pillars of the ASEAN Economic Community)
1. Single Market and Production Base:
• Measures to facilitate the free flow of goods, services, investment, and skilled labor. This includes the
elimination of tariffs, the harmonization of standards, and the development of a more integrated production
network.
• Five core principles of the ASEAN single market and production base
1. Free flow of goods
2. Free flow of service
3. Free flow of investment
4. Free flow of capital
5. Free flow of skilled labor
2. Competitive Economic Region:
• Initiatives to enhance the competitiveness of ASEAN, including the promotion of innovation, improvement of
infrastructure, and development of a more favorable business environment.
3. Equitable Economic Development:
• Strategies to address development disparities among ASEAN member states, promoting inclusive growth and
narrowing the development gap within the region.
4. Integration into the Global Economy:
• Efforts to integrate ASEAN into the global economy by strengthening economic linkages, enhancing trade
facilitation, and fostering economic cooperation with external partners.

ASEAN Free Trade Area

• ASEAN Member Countries have made significant progress in the lowering of intra-regional tariffs through the
Common Effective Preferential Tariff (CEPT) Scheme for AFTA.
• More than 99 percent of the products in the CEPT Inclusion List (IL) of ASEAN-6, comprising Brunei
Darussalam, Indonesia, Malaysia, the Philippines, Singapore and Thailand, have been brought down to the 0-5
percent tariff range.
• As of this date, tariffs on 64.12 percent of the products in the IL of ASEAN-6 have been eliminated. The
average tariff for ASEAN-6 under the CEPT Scheme is now down to 1.51 percent from 12.76 percent when the
tariff cutting exercise started in 1993.

The Global Economy and Outsourcing

Outsourcing is when a company decides to hire another company or individuals to perform certain tasks or provide
services that were traditionally done in-house. Instead of handling everything internally, a company delegates
specific functions or processes to external parties. Outsourcing means more than just the purchase of raw materials
and standardized intermediate goods. However, because outsourcing involves more than just the purchase of a
particular type of good or service, it has been difficult to measure the growth in international outsourcing
(Grossman et al., 2016).

Business Process Outsourcing (BPO) – is a billion dollar business in the Philippines because of less expensive
operational and labor costs. Call centers provide almost type of customer relations:
• Travel services
• Technical support
• Education
• Customer care
• Financial services

Global Corporation
• Global Corporations Global Corporation is a business that operates in two or more countries. It also goes by
the name "multinational company."
• Global Corporations and Globalization can also offer the benefits of economies of scope and economies of
scale.
○ Economies of scope means that you can take advantage of different skill sets and market advantages
(ex. Call center).
○ Economies of scale means that when you use more equipment in production or buy supplies and resale
products in larger quantities, you can get better costs per unit, increasing profitability
• Examples of Global Corporations:
1. Technology:
- Apple Inc. (United States)
- Samsung Electronics Co., Ltd. (South Korea)
- Microsoft Corporation (United States)
2. Automobiles:
- Toyota Motor Corporation (Japan)
- Ford Motor Company (United States)
3. Fast Food and Retail:
- McDonald's Corporation (United States)
- The Coca-Cola Company (United States)
4. Finance and Banking:
- HSBC Holdings plc (United Kingdom)
6. Pharmaceuticals and Healthcare:
- Pfizer Inc. (United States)
- Johnson & Johnson (United States)
7. Consumer Goods:
- Unilever plc (United Kingdom/Netherlands)
- Nestlé S.A. (Switzerland)
9. Entertainment and Media:
- The Walt Disney Company (United States)
- Sony Corporation (Japan)
- Netflix Inc. (United States)

These companies operate globally, with a presence in multiple countries and regions.