Market Integration Chapter 2 PDF

Market Integration ECONOMIC DEVELOPMENT DURING AND AFTER WORLD WAR II According to Frieden, the recent major incidents, i.e., WWI, the Great Depression, and WW II, greatly affected the development of economic globalization. All of these had negative effects on almost all major economies. Which led...

Market Integration ECONOMIC DEVELOPMENT DURING AND AFTER WORLD WAR II According to Frieden, the recent major incidents, i.e., WWI, the Great Depression, and WW II, greatly affected the development of economic globalization. All of these had negative effects on almost all major economies. Which led many countries in the direction of autarky BRETTON WOODS AND THE BRETTON WOODS SYSTEM A key factor in the Depression was thought to be a lack of cooperation among nation-states. Those concerns were the backdrop for the creation of the Bretton Woods system and its five key elements (Bordo & Eichengreen, 1993; Boughton, 2007): (a) each participating state would establish a “par value” for its currency expressed in terms of gold or (equivalently) in terms of the gold value of the US dollar as of July 1944” (Boughton 2007) (b) the official monetary authority in each country (a central bank or its equivalent) would agree to exchange its own currency for those of other countries at the established exchange rates, plus or minus a one percent margin (Boughton, 2007) (c) the International Monetary Fund (IMF) was created (Babb, 2007) to establish, stabilize, and oversee exchange rates. Forty states became IMF members in 1946 and were required to deposit some of their gold reserves with the Fund. (d) the member states agreed to eliminate, at least eventually “all restrictions on the use of its currency for international trade” (Boughton, 2007) (e) the entire system was based on the US dollar General Agreement on Tariffs and Trade (GATT) GATT was a system for the liberalization of trade that came into existence in 1947, growing out of Bretton Woods (Hudec, 1975). It operated until 1995, when it was superseded by the WTO. GATT focused on trade in goods, and it was simply a forum for the meeting of representatives of countries. World Trade Organization (WTO) The WTO is a multilateral organization headquartered in Geneva, Switzerland with 164 member nations as of 2018 International Monetary Fund (IMF) The IMF deals with exchange rates, balances of payments, international capital flows, and the monitoring of member states and their macroeconomic policies. World Bank (WB) The World Bank is a specialized agency of the United Nations. It was established in 1944 at Bretton Woods and began operations in 1946 Among the Bank's missions are: encouraging “development of productive facilities and resources in less developed countries”; funding for “productive purposes” when private capital cannot be obtained on reasonable terms; encouraging international investment in order to promote international trade and development and equilibrium in balance of payments; helping member countries improve their productivity, standard of living, and labor conditions. (Bradlow, 2007) THE ROLE OF EMERGING ECONOMIES Countries like Brazil, Russia, India, China, South Africa. They are commonly known as BRICS countries, although they have not announced formal trade agreements, but their leaders attend summits together and often act in concern with one another’s interests. GLOBAL CORPORATIONS The contemporary global corporation is simultaneously and commonly referred to either as a MNC, a transnational corporation (TNC), an international company or a global company. The distinction offered by Iwan (2012) are practically useful.  International companies are importers and exporters, typically without investment outside of their home country. Multinational companies have investment in other countries, but do not have coordinated product offerings in each country. They are more focused on adapting their products and services to each individual local market  Global companies have invested in and are present in many countries. They typically market their products and services to each individual local market. Transnational companies are more complex organizations which have invested in foreign operations, have a central corporate facility but give decision making, research and development (R&D) and marketing powers to each individual foreign market The development of global corporations can be examined from the sources and the levels of foreign direct investment (FDI) – it involves the investments by one firm that exists abroad in a different nation-state and with the intention of gaining control over the latter’s operation. foreign portfolio investment (FPI)– it involves the purchase of equity in companies in other countries with the motivation of financial gain. These global corporations have common attributes. Neubaer (2014) identifies three of them – an agent of desired economic development, an economic prominence, and a very powerful entity that can create a crisis.