Global Economy and Market Integration

• The global economy is also referred to as the "world economy".
• It refers to the international exchange of goods and services.
• It may also mean the free movement of goods, capital, services, technology, and information.

Global Economy or Economic Globalization

• It is concerned with the globalization of production, finance, markets, technology, organizational regimes, institutions, corporations, and labor.
• It is expanding due to the emergence of transnational trade and an increased rate of communication and technology.
• The creation of world trade organizations made countries cut down trade barriers and open up their current accounts and capital accounts.

Market Integration

• Market integration exists when prices among different locations or related goods follow the same pattern over a long period of time.
• When groups of prices often move proportionally to each other and this relation is very clear among different markets, the market is integrated.
• Market integration indicates how much different markets are related to each other.

Role of International Financial Institutions (IFIs) in the Creation of Global Economy

• International Financial Institutions (IFIs) are chartered by more than one country and are subject to international law.
• The owners or shareholders of IFIs are generally national governments, although other international institutions and organizations may also be shareholders.
• Most prominent IFIs are creations of multiple nations, though bilateral financial institutions created by two countries also exist and are technically IFIs.

Examples of IFIs

• International Monetary Fund (IMF)
• Multilateral Development Banks (MDBs), which include many regional development banks:
  • World Bank Group
  • African Development Bank
  • Asian Development Bank
  • Inter-American Development Bank
  • European Bank for Reconstruction and Development

Membership Composition of IFIs

• Only sovereign countries are admitted as member owners.
• Broad country membership includes borrowing developing countries and developed donor countries.
• Membership in regional development banks includes countries around the world as members.
• IFIs have their own independent legal and operational states.

Main Objectives of IFIs

• The IMF provides temporary financial assistance to member countries to help ease balance of payments adjustments.
• MDBs provide financing for development to developing countries through:
• Long-term loans with maturities up to 20 years at interest rates below market rates, funded by international capital markets.
• Very long-term loans (sometimes called credits) with maturities of 30-40 years at interest rates below market rates, funded by direct government contributions in donor countries.
• Grant financing by some MDBs for technical assistance advisory service or project preparation.

Global Corporations

• A global corporation is one that operates in more than one country.
• Michael Porter defined global businesses as those maintaining a strong headquarters in one country but having investments in multiple foreign locations.
• The headquarters is its home country.
• Global corporations seek economies of scale by selling the same products in multiple locations with limited local customization.
• In finance and investment, a global corporation has significant investments and facilities in multiple countries but might lack a dominant headquarters.
• Global corporations are governed by the laws of the country where they are incorporated.
• A global business connects its talents, resources, and opportunities across political boundaries.
• An international company has a headquarters (e.g., in the United States) but conducts business overseas and may have a large presence in multiple areas.
• It's governed by U.S. regulations if headquartered in the U.S., but may have foreign subsidiaries governed by local laws.