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Market integration is a term that is used to identify a phenomenon in which markets of goods and services that are somehow related to one another being to experience similar patterns of increase or decrease in terms of the prices of those products. The term can also refer to a situation in which the prices of related goods and services sold in a defined geographical location also begin to move in some sort of similar pattern to one another. At times, the integration may be intentional, with a government implementing certain strategies as a way to control the direction of the economy. At other times, the integrating of the markets may be due to factor such as shifts in supply and demand that have a spillover effect on several markets.
When a market integration exists, the events occurring within two or more markets are exerting effects that also prompt similar changes or shifts in other markets that focus on related goods. For example, if the demand for baby dolls within a given geographical market were to suddenly be reduced by 50%, there is a good chance that the demand for baby doll clothing would also decrease in proportion within that same geographical market. Should the baby market increase, this would usually mean that the market for doll clothing would also increase. Both markets would have the chance to adjust pricing in order to deal with the new circumstances surrounding the demand, as well as adjust other factors, such as production.
Market integration may occur with just about any type of related markets. With a stock market integration, similar trends in trading prices for assets related to a given industry may be found in two or more markets around the world. In like manner, financial market integration may occur when lending rates in several different markets begin to move in tandem with one another. In some cases, the integration within a nation may involve the emergence of similar patterns within the capital, stock, and financial markets, with those trends coming together to exert a profound influence on the economy of that nation.
Market integration can often be a very positive situation, especially if the emerging pattern regarding pricing is indicative of an increasingly prosperous economy. At the same time, assessing integration between markets can also be a useful tool in identifying trends that are less than desirable, and having the chance to begin reversing those trends while there is still time. For this reason, financial analysts as well as economists will often monitor activity in related markets, identify any signs of integration and make recommendations on what strategies could be used to make the most of the emerging situation.
Market integration measures the degree to which changes in market conditions in one market affect those in other markets (separated by time or space). It is all about how the change in the price of a product in one market can influence the price of the same product in another market.
Market integration may happen due to different factors, like shifts in demand and supply, which can have a spillover effect in the market from the normal pattern or due to government strategies as a means of controlling the direction of the economy by removing trade barriers between the two market.