CONWORLD Lecture 7 - Market Integration PDF

# Chapter III: Market Integration ## Introduction - The economy has a big impact on society, impacting employment, gross domestic product (GDP), and the stock market. - The economy is made up of people, and it includes production, consumption, and trade of goods in society. - There are many...

# Chapter III: Market Integration ## Introduction - The economy has a big impact on society, impacting employment, gross domestic product (GDP), and the stock market. - The economy is made up of people, and it includes production, consumption, and trade of goods in society. - There are many ways to produce, exchange, and use products, including capitalism and socialism. ## Economics Systems - Economic systems vary from one society to another, but typically have three sectors: - **Primary sector:** extracts raw materials from natural environments. - **Secondary sector:** manufactures goods using raw materials. - **Tertiary sector:** provides services rather than making goods. ## Market Integration - The chapter will discuss global market integration, international financial institutions, economic revolutions, and multinational corporations. ## International Financial Institutions - Globalization has brought countries closer together; when one economy sneezes, the rest of the world catches a cold. - The strength of powerful economies affects the global market, and crises in weaker economies have a lesser effect. ## Bretton-Woods System - This system was established in 1944. - It was created after World War I, the Great Depression, and World War II, due to concerns about lack of cooperation among nations, political instability, and economic turmoil. - The system aimed to reduce barriers to trade, encourage free flow of money, and restructure the global economy. ## Five Key Elements of the Bretton-Woods System 1. **Gold Standard:** Defined currency value in relation to gold. 2. **Fixed Exchange Rates:** Countries agreed to exchange currencies at fixed rates with a +/- 1% margin. 3. **International Monetary Fund (IMF):** Oversees exchange rates. 4. **Elimination of Currency Restrictions:** Nations agreed to eliminate trade barriers on currencies. 5. **US Dollar as Global Currency:** The US dollar became the global currency. ## The World Trade Organization (WTO) - The WTO emerged from the General Agreement on Tariffs and Trade (GATT). - Established in 1947, the GATT included 23 member nations and focused on trade goods through agreements based on trade "rounds." - In 1993 The WTO was created from the Uruguay Round of trade agreements. - It is an independent organization based on neoliberalism: the idea that reducing trade barriers benefits all nations. ## Criticisms of the WTO - The organization has been criticized for: - Trade barriers, especially in agriculture, that are not countered effectively by developing nations. - Decision-making processes that are dominated by larger trading powers. - The exclusion of smaller powers in important meetings. - The lack of involvement of international non-governmental organizations, which results in protests against the WTO. ## The International Monetary Fund (IMF) and the World Bank - The IMF and World Bank were formed after WWII to promote peace and economic stability. - The IMF's goal was to support countries facing financial difficulties. - The World Bank focused on funding projects to reduce poverty, especially in developing nations. - The organizations have faced criticism for lending to corrupt governments and imposing ineffective austerity measures. ## The Organization for Economic Cooperation and Development (OECD), the Organization of Petroleum Exporting Countries (OPEC), and the European Union (EU) - **OECD:** Is an organization of the richest countries, with 35 member states in 2016. - **OPEC:** Was founded in 1960 and consists of oil-exporting countries: Saudi Arabia, Iraq, Kuwait, Iran, and Venezuela, and later included United Arab Emirates, Algeria, Libya, Qatar, Nigeria, and Indonesia. - **EU:** A union of 28 member states. ## The North American Free Trade Agreement (NAFTA) - Established in 1994, NAFTA is a trade pact between USA, Mexico, and Canada. - It aimed to reduce trade barriers, promote cooperation, and improve working conditions. ## Negative Impacts of NAFTA - Manufacturing jobs shifted from developed to less developed nations, causing job losses and economic hardship. - Many Mexican farmers were forced to abandon their farms due to increased competition, leading to food poverty for around 25% of the Mexican population. ## Both Positive and Negative Impacts of NAFTA - The agreement increased trade, lowered prices by removing tariffs, and created jobs in the USA, but it also resulted in pollution, job losses in manufacturing, worker exploitation in Mexico, and harm to Mexican farmers.