Module Two Global Economy

GLOBAL
ECONOMY
MODULE TWO
DEFINITION OF GLOBAL
ECONOMY
Also referred to as “WORLD
ECONOMY”
Refers to the international

exchange of goods and services.
It may also means as the free

movement of goods, capital,
services, technology and
information
GLOBAL ECONOMY OR ECONOMIC GLOBALZATION
It is concerned with globalization of
production, finance, markets, technology,
organizational regimes, institutions,
corporations and labor.
It is expanding since the emergence of

trans-national trade and increased
exponentially due to the increase 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
• Prices among different location or related
goods follow the same pattern over a long
period of time, then market integration exist
• When group of prices often move

proportionally to each other and when this
relation is very clear among different
markets, then market is integrated.
• The market integration is an indicator how

much different markets are related to each
other
ROLE OF INTERNATIONAL FINANCIAL
INSTITUTIONS IN THE CREATION OF GLOBAL
ECONOMY
• International Financial Institutions (IFI) are chartered by

more than one country and therefore are subjects to
international law
The owners or shareholders are generally national

governments, although other international institutions
and other organizations occasionally figure as
shareholder.
Most of the prominent IFI’s are creations of multiple

nations, although some bilateral financial institutions
(created by two countries) exist and are technically IFI’s.
The International Financial Institutions (IFIs) are:
A. International Monetary Fund
(IMF)
B. Multilateral Development Banks

(MDBs) which include:
a. World Bank Group
b. African Development Bank
c. Asian Development Bank
d. Inter-American Development
Bank
e. European Bank for
Reconstruction and Development
INTERNATIONAL MONETARY FUND
The International Monetary Fund (IMF) is a
major financial agency and an international
financial institution funded by 190 member
countries.
It is regarded as the global lender of last resort to

national governments, and a leading supporter
of exchange-rate stability. Its stated mission is
"working to foster global monetary cooperation,
secure financial stability, facilitate international
trade, promote high employment and sustainable
economic growth, and reduce poverty around the
world.
MULTILATERAL DEVELOPMENT
BANKS
A multilateral development bank (MDB) is a financial institution established by
multiple member countries and falls under international law. The owners of
multilateral development banks are a national government and other international
institutions and organizations.
The purpose of MDBs is to facilitate financing and provide advisory services for
developing countries. Multilateral development banks are also referred to as an
international financial institution (IFI).
WORLD BANK GROUP
World Bank, in full World Bank
Group, international organization
affiliated with the United Nations
(UN) and designed to finance projects
that enhance the economic
development of member states.
The World Bank is an international

financial institution that provides
loans and grants to the governments
of low-and middle-income countries
for the purpose of pursuing capital
projects.
African Development
Bank
The African Development Bank
(ADB) is a financial institution that
funds projects that promote
economic and social progress
throughout the continent. The bank
is also known as Banque Africain
de Développement.
The bank has 54 member states

among the African nations and 26
non-African member states
African Development Bank
• The African Development Bank finances private and
public projects that promote economic and social
progress.
• Core infrastructure such as highways and water

systems are a priority.
• Its current major projects include the construction of

a 745-mile from Lagos, Nigeria, to Abidjan, Ivory
Coast.
• Technical and vocation education for young Africans is

another priority.
• Public and private projects are eligible for financing

through the Bank.
• The African Development Fund and the Nigeria trust

fund operate under the umbrella of the African
Development Fund Group.
Asian Development Bank
The Asian Development Bank (ADB)
envisions a prosperous, inclusive, resilient,
and sustainable Asia and the Pacific, while
sustaining its efforts to eradicate extreme
poverty in the region.
ADB assists its members, and partners, by
providing loans, technical assistance, grants,
and equity investments to promote social
and economic development.
ADB maximizes the development impact of
its assistance by facilitating policy dialogues,
providing advisory services, and mobilizing
resources through cofinancing operations
that tap official, commercial, and export
credit sources.
Inter-American Development
Bank
The Inter-American Development Bank (IDB) is a
cooperative development bank founded in 1959 to
accelerate the economic and social development of its
Latin American and Caribbean member countries. It is
owned by a total of 48 member countries, including the
U.S. and some European nations. The bank provides
financing in the form of loans and grants.
The IDB assists Latin American and Caribbean
countries in formulating development policies and
provides financing and technical assistance to achieve
environmentally sustainable economic growth,
increase competitiveness, enhance social equity, fight
poverty, modernize the state, and foster free trade and
regional integration.
European Bank for Reconstruction and
Development
The term European Bank for Reconstruction
and Development (EBRD) refers to a financial
institution established in 1991. The organization
was developed to help Eastern European and ex-
Soviet countries transitioning into democracies
by developing free-market economies after the
fall of communism. The EBRD continues its work
in more than two dozen countries from Central
Europe to Central Asia, investing mainly in
private banks and businesses, including new
ventures and existing companies.
European Bank for Reconstruction and
Development
The European Bank for Reconstruction and
Development works in 38 different countries in
Southern and Eastern Mediterranean, Central and
Eastern Europe, and Central Asia. It is publicly
owned by shareholders in 69 countries. It only
supports countries that are committed to
democratic principles. The organization also
promotes environmentally sustainable
development and gender equality and promises to
be fully transparent. The organization does not
finance projects related to the tobacco industry,
defense, certain alcoholic products, stand-alone
gambling facilities, or substances banned by
international law.
MAIN OBJECTIVES
• IMF provides temporary financial assistance to member countries to help ease
balance of payments adjustments.
• MBDs provide financing for development to developing countries through:

 long term loans (with maturities of up to 20 years) at interest rates way below
market rates. Funding comes from international capital markets and relend to
borrowing government in developing countries.
 very long-term loans (sometimes called credits with maturities of 30-40
years) at interest rates below market rates. Funding for loans come from
direct contributions by government in the donor countries.
 grant financing by some MDBs for technical assistance advisory service or
project preparation.

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GLOBAL

Refers to the international

It may also means as the free

It is expanding since the emergence of

The creation of world trade organizations

• When group of prices often move

• The market integration is an indicator how

• International Financial Institutions (IFI) are chartered by

The owners or shareholders are generally national

Most of the prominent IFI’s are creations of multiple

B. Multilateral Development Banks

It is regarded as the global lender of last resort to

The World Bank is an international

The bank has 54 member states

• Core infrastructure such as highways and water

• Its current major projects include the construction of

• Technical and vocation education for young Africans is

• Public and private projects are eligible for financing

• The African Development Fund and the Nigeria trust

• MBDs provide financing for development to developing countries through:

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