Unit 5: International Institutions and the Geopolitics of Emerging Markets
This unit explores the international institutions that enhance international trade and keep it secure. We will see how domestic and international politics influence international business and assess its risks and opportunities. Do nations benefit from global institutions? Is the reduction in national sovereignty worth the trade-off?
Completing this unit should take you approximately 2 hours.
Upon successful completion of this unit, you will be able to:
- distinguish between the major international institutions and understand their influence over the world economy;
- assess the level of political risk in selected countries or regions;
- explain how international institutions and political partnerships can support the expansion of international business;
- perform country risk analysis to determine areas where risk can be reduced or mitigated; and
- describe the factors that influence exchange rate movement and the implications.
5.1: International Institutions
International institutions play a critical role in the global economy. They encourage trade between nations, set industrial standards, and settle disputes to create an even playing field for commerce. While the system is not perfect, international institutions have contributed to the relative success of global economic growth and standard of living improvements around the world.
The World Trade Organization (WTO) was founded in 1995 and replaced the General Agreement on Tariffs and Trade (GATT), which had been in place since the end of the Second World War. Today, the WTO has 164 member nations that coordinate on promoting trade and enforcing agreements between members. Read this page to learn more.
The World Bank is a global organization created in 1944 at the Bretton Woods Conference alongside the International Monetary Fund. The World Bank has two divisions: the International Bank for Reconstruction and Development and the International Development Association. They provide loans and grants, primarily to poorer countries, that are financed by wealthier nations. Currently, they have 184 member countries, and their main goal is to reduce poverty. The World Bank plays an essential role in the global economy and strives to develop countries to benefit from international commerce and improve living standards. Read pages 7-11 and browse the other sections to become familiar with the World Bank's structure and purpose.
The International Monetary Fund (IMF) was also established in 1944. It currently has 189 member nations. The IMF promotes financial stability and sustainable economic growth, and researches economic trends, provides statistics, and offers lending and international trade services to its members. The IMF website provides a tremendous amount of economic and financial information about countries. Watch this video to see how to obtain financial information on the IMF website.
5.2: Political Partnerships
For international trade to be prosperous, nations must negotiate and cooperate. Trade agreements are typically forged through existing political partnerships or developed by establishing new partnerships and shared goals. What do these partnerships mean for international business?
Regional trading blocs have become common in recent decades. They remove trade borders between neighboring countries to expand local markets and bolster trade by streamlining regulations, tariffs, and economic policies. These blocs can also come in the form of customs unions, which essentially create one shared market between several countries and dictate trade policies between countries in the union and those outside it.
There are several ways a trade agreement can be structured. Bilateral trade agreements are between two countries, while multilateral trade agreements may involve countries. Read this section. Can you think of situations that could lead countries to prefer one type of agreement over another?
Watch this video to see how multilateral trade agreements can help developing countries integrate into the global economy and attain specific economic goals.
Alliances are partnerships between countries created for various reasons, such as economic, political, or security concerns. Countries that have security alliances naturally develop trust, which can expand into other areas such as trade. Watch this video on ASEAN (the Association of Southeast Asian Nations), which describes how the organization began to solidify political, security, economic, and socio-cultural cooperation in southeast Asia.
5.3: Trade Policy
Trade policy is the political component of a country's ability to export and import. Policies may be stable over time, but can also change quickly depending on the country's mood and political influencers. Elections also influence trade policy, which you have likely noticed recently in several countries.
Managers of international businesses may be comfortable with current trade policies, but markets can always shift due to the political risks, which forces businesses to adapt. Watch this video on political risk, focusing on what steps a company should take to mitigate risks and plan for uncertainty.
Economic risks can include elections, wars, or recessions. There have been several cycles of economic risks in your lifetime, and we will experience even more in the coming years. International businesses also encounter economic pressures, and so they must plan for downturns even when economic conditions are good. Explore the Economic Policy Uncertainty Index on this page, and read more about how it is developed.
5.4: Emerging Markets
Emerging markets present a tremendous opportunity for investors and companies seeking new markets. They also typically bring a greater level of political, economic, and security risks.
Let's explore emerging markets by reviewing these 2018 statistics from the World Bank.
Study Guide: Unit 5
We recommend reviewing this Study Guide before taking the Unit 5 Assessment.
Unit 5 Assessment
- Receive a grade
Take this assessment to see how well you understood this unit.
- This assessment does not count towards your grade. It is just for practice!
- You will see the correct answers when you submit your answers. Use this to help you study for the final exam!
- You can take this assessment as many times as you want, whenever you want.