Lecture 2 – The Global Economy and Market Integration

Economy

Organized system of production, distribution, and consumption of goods/services within a nation.

Economics

Social science studying allocation of scarce resources (land, labor, capital) on these are distributed and consumed.

• study of how people, businesses, and governments
  use limited resources to satisfy unlimited needs and wants

Global Economy

Interconnected worldwide network of economic activities, markets, and financial transactions.

Global Market Interconnectedness

Linkage of economies via trade, investment, technology, communication (e.g., financial contagion).

Market Integration

Process of removing barriers (tariffs, quotas) to allow free flow of goods, services, capital, labor across borders.

Multinational Corporations (MNCs)

Large corporations operating in multiple countries, standardizing products/processes, influencing local economies.

• Standardize products/processes; invest & employ globally; influence local economies.

International Trade Agreements

Treaties reducing trade barriers to promote free trade (e.g., NAFTA, WTO, EU).

• Reduce trade barriers; open markets; boost global trade.

Global Financial Institutions

Organizations like IMF, World Bank promoting economic stability and development globally.

• Provide funding, economic advice; promote stability & development.

Technological Advancements

Multinational Corporations

International Trade Agreements

Global Financial Institutions

Key Drivers of Market Integration

Technological Advancements

Reduced communication & transaction costs; faster transport; real-time trade & finance.

Global Financial Institutions

Provide funding, economic advice; promote stability & development.

Free Trade Area

Remove trade barriers among members; independent external trade policies

• ASEAN Free Trade Area (AFTA)

Customs Union

FTA + common external tariff on non-members.

• Southern African Customs Union

Common Market

Customs union + free movement of labor, capital, services.

• European Economic Area (EEA)

Economic Union

Common market + harmonized economic policies (tax, monetary, fiscal), possibly common currency

• European Union (EU)

Benefits:

- Access to larger markets → more sales/profit
- Specialization
- Foreign exchange earnings
- Job creation

Cons:

- Overdependence on foreign demand
- Resource depletion risk
- Hurt local producers
- Vulnerability if exports limited to few products

Exporting Countries

Benefits:

- Access to cheaper/better goods
- Expanded consumer choice
- Technology/raw materials imports
- Inflation control

Cons:

- Trade deficits risk
- Weakening local industries
- Job losses in local sectors
- Dependence on exporters

Importing Countries

ASEAN Free Trade Area (AFTA) / ASEAN Economic Community (AEC)

Regional Comprehensive Economic Partnership (RCEP)

Bilateral Free Trade Agreements (FTAs)

• Japan–Philippines Economic Partnership Agreement (JPEPA)

• Philippines–EFTA (Iceland, Liechtenstein, Norway, Switzerland)

• ASEAN + Dialogue Partner FTAs: Under ASEAN’s framework, the Philippines benefits from preferential trade agreements with ACFTA (China), AKFTA (Korea), AIFTA (India), AANZFTA (Australia–New Zealand), AJCEP (Japan)

BIMP-EAGA (Brunei–Indonesia–Malaysia–Philippines East ASEAN Growth Area

Asia-Pacific Trade Agreement (APTA)

WTO Membership

Market Integration Memberships – Philippines

ASEAN Free Trade Area (AFTA) / ASEAN Economic Community (AEC)

• A regional integration initiative among ASEAN members, including the Philippines, that eliminates tariffs on goods and liberalizes services and investments.

• Started: Signed in 1992; tariffs largely removed by 2002–2003.

• Status: Fully part of the ASEAN Economic Community since its launch in 2015.

Regional Comprehensive Economic Partnership (RCEP)

• Mega-regional free trade agreement uniting ASEAN and six key Asia-Pacific economies, covering goods, services, investment, e-commerce, and more.

• Started: Signed in November 2020; officially took effect for the Philippines on June 2, 2023.

Bilateral Free Trade Agreements (FTAs)

• Japan–Philippines Economic Partnership Agreement (JPEPA): Entered into force in 2008; covers goods, services, investment, and labor mobility.

• Philippines–EFTA (Iceland, Liechtenstein, Norway, Switzerland): Enacted in 2018, covering goods, services, investment, competition, and sustainable development.

• ASEAN + Dialogue Partner FTAs: Under ASEAN’s framework, the Philippines benefits from preferential trade agreements with ACFTA (China), AKFTA (Korea), AIFTA (India), AANZFTA (Australia–New Zealand), AJCEP (Japan).

BIMP-EAGA (Brunei–Indonesia–Malaysia–Philippines East ASEAN Growth Area)

sub-regional cooperation to promote development via trade and investment facilitation.

Asia-Pacific Trade Agreement (APTA)

broader Asia-Pacific preferential trade agreement (formerly Bangkok Agreement) dating back to 1975; aims to boost trade and investment liberalization.

WTO Membership

Philippines joined the World Trade Organization in 1995, marking commitment to multilateral trade rules.