tcw 3

• Market Integration


  A process by which economies are becoming more interdependent and interconnected in terms of commodity flows including externalities and spillover of impacts
• Market integration, in a simple way, means that different regions or areas are connected so that goods, services, or financial assets can move more easily between them
• When markets are integrated, it becomes easier for buyers and sellers from different places to trade, leading to more efficient and interconnected economies
• Global economy


  The interconnectedness and interdependence of economies worldwide, involving international trade, financial flows, foreign investments, and the movement of goods, services, and capital on a global scale
• Market integration


  The ease with which goods, services, and resources can move within or between specific markets or regions, by reducing barriers and making it easier for businesses and consumers in different areas to trade with each other
• Market integration


  A component of the global economy, as when various markets become more integrated, they contribute to the overall interconnectedness and functioning of the global economy
• Market integration can happen on various scales, such as within a single country, between neighboring countries, or among regions with common trade agreements
• Horizontal integration


  When a company acquires or merges with other companies that operate at the same stage of the supply chain or in the same industry, to increase market share, reduce competition, and broaden the range of products or services offered
• Horizontal integration

  • Disney bought Pixar
  • Landbank of the Philippines acquired the Philippines Postal Savings Bank
• Vertical integration


  When a company expands into different stages of the supply chain, either backward (upstream) toward suppliers or forward (downstream) toward distributors or retailers, to gain more control over the production process, reduce costs, improve efficiency, and enhance product quality
• Vertical integration


  • An iron mining company operates the steel manufacturing firm
  • McDonald's owns the land where its supplies are located to avoid cost of lease
• Horizontal integration reduces competition, while vertical integration enhances control and coordination over various aspects of production and distribution
• International Financial Institutions (IFIs)

  Institutions that provide support through loans and technical advice to promote a country's economic and social development
• Corporations


  Private institutions that produce or manufacture goods, products, and services for a more expanded market usually at the reach of world
• Transnational Corporations (TNCs)


  Have a more complex setting where each foreign subsidiary is given some freedom to develop its own product lines and marketing
• Multinational Corporations (MNCs)


  Have more of a home or country base taking care of the R & D and marketing, and focus more on exporting their products and services
• Role of IFIs in market integration

  • Provide financial and technical services and products not for profit but for overall economic and social development
  • Provide loans, technical assistance, and policy-based lending: macroeconomic stability and providing the necessary infrastructure and systems, sectoral reforms, and creation of safety nets through policy-based lending
  • Work with private sector for investment and policy reforms to promote private sector expansion
• IFIs have been a critical actor in the contemporary world, with recognized contributions to social and economic development and progress
• 4 key issues with IFIs

  • Legitimacy
  • Effectiveness
  • Support Conditionality
  • Financial Capacity and Sustainability
• Legitimacy issue with IFIs

  Majority of its shareholders and policy making powers lie with powerful, rich nations, and leaders of these IFIs have always been from developed countries
• Effectiveness issue with IFIs

  Some of the IFIs' investments have been controversial such as support to large-scale land use conversion (dam construction), which has displaced numerous indigenous people
• Support Conditionality issue with IFIs

  Loans from IFIs come with certain conditions that the borrowing country has to meet, such as on privatization, trade liberalization, elimination of subsidy, and limits to public investments
• Financial Capacity & Sustainability issue with IFIs

  The IFIs income base has reduced compared to what it was before, although the demand from IFIs are increasing particularly in contributing towards regional and global development initiatives
• Some conditions on privatization, trade liberalization, elimination of subsidy, and limits to public investments are mostly covered and argued against by some sectors
• Dreher, 2009: 'These conditionalities impose Western free-market policies on developing countries which could be ill-fated, inappropriate, or undesired by receiving countries'
• The IFIs income base has reduced compared to what it was before, although the demand from IFIs are increasing particularly in contributing towards regional and global development initiatives
• Some middle income countries also limit their loans with IFIs due to a higher transactional cost as well as the conditionality commons attached to these financial services
• Some concessional financing has been transformed into grants from loans which may be more attractive to the recipient country but could take a toll to the financial sustainability of IFIs
• Global corporations


  Multinational corporations and transnational corporations
• The number of global corporations from emerging market economies listed in the Fortune Global 500 rose from 47 firms in 2005 to 95 in 2010
• Multinational corporations (MNCs)


  Provide central decisions compared to transnational corporations (TNCs) that provide individual foreign market investment to have their own operations and systems
• The capital flows have now started to change from the dominant North-North/North-South TO South-South and South-North capital flows, most of the South-North coming from China and India
• Global corporations


  • Lenovo Corporation bought IBM Division
• These global entities, IFIs and global corporations, play a significant role in global wealth creation and distribution, including global economic development
• The significant growth of IFIs and global corporations is complicated by ever-dynamic contexts and patterns including global inequality, systematic stability, viability of the global financial system and climate issues, and issues on human security
• IFIs 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
• 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
• Summarized History of the Global Economy

  1. The modern capitalist world economy flourished between the 16th to 18th century

  2. The start of the modern global trade leading to 1914 was considered the first period of globalization

  3. From the Second World War to the late 1990s, the modern international economic enabling architecture was established

  4. From the late 1990s until very recently, the third wave of market integration

  5. As the world enters the "Fourth Industrial Revolution", there will be slower economic growth, political destabilization, and diffusion of power
• International conventions and treatise also served as drivers for these large-scale global movements such as the International Telegraph Union in 1865, Universal Postal Union in 1897, International Association of Railway Congresses (1884), and International Sanitary Convention in (1982)
• The euphoria on globalization and global free trade was put into question with the 1994/95 Mexico's multi-billion loan from IMF created a negative spillover effect on US, Europe, Portugal, and Spain