“Globalisation and trade”
Alevel economics
What is globalisation?
Globalisation refers to the increasing interconnectedness and interdependence of economies, cultures, and
populations across the world. It is driven by the expansion of international trade, investment, technology,
and the movement of people and ideas. In economics, globalisation is often defined as the process by which
goods, services, capital, and labour flow more freely across national borders, leading to the integration of
markets and the creation of a global economy. This process has accelerated in recent decades due to
advances in transport and communication technologies, trade liberalisation through organisations such as the
WTO, and the growth of multinational corporations. While globalisation can promote economic growth and
access to a wider variety of goods and services, it also raises concerns about inequality, environmental
sustainability, and the erosion of national sovereignty.
• Developed economies (also called advanced economies) are nations with high levels of income per
capita, diversified industrial and service sectors, and high standards of living. They typically have
well-established infrastructure, strong institutions, and low levels of poverty. Examples include the
UK, USA, and Germany.
• Developing economies are countries with lower income per capita, less industrialisation, and lower
Human Development Index (HDI) scores. They often rely on primary industries (like agriculture or
mining), have weaker infrastructure, and face challenges such as poverty, political instability, and
limited access to healthcare and education. Examples include Ethiopia and Nepal.
• Emerging economies are countries in transition from developing to developed status. They are
characterised by rapid economic growth, increasing industrialisation, and improving living standards.
They often attract significant foreign direct investment (FDI) and are becoming major players in
global trade. Examples include China, India, and Brazil (often referred to as part of the BRICS
nations).
Multinational Corporations (MNCs) and Globalisation
Multinational corporations (MNCs) are firms that operate in more than one country, with headquarters in
their home nation and subsidiaries, factories, or offices in others. Examples include Apple, Coca-Cola, and
Toyota. MNCs are both a driver and a product of globalisation.
MNCs promote globalisation by:
• Spreading technology and innovation across borders as they set up production in different
countries.
• Facilitating trade and investment flows, as they move goods, services, and capital around the
world.
• Creating global supply chains, where raw materials, components, and labour come from multiple
nations (e.g. Apple designing in the US, manufacturing in China, sourcing parts globally).
• Influencing cultural globalisation through branding and advertising, leading to the spread of
similar consumer habits worldwide.
MNCs benefit from globalisation through:
, • Access to larger markets and economies of scale.
• The ability to locate production where costs are lowest (e.g. cheaper labour in developing countries).
• Taking advantage of trade liberalisation and reduced barriers.
However, MNCs are also criticised for:
• Exploiting workers in developing countries (low wages, poor working conditions).
• Contributing to environmental degradation.
• Having too much influence over governments and local economies.
Causes contributing to globalisation
1. Trade liberalisation- this is the reduction or removal of tariffs and other restrictions on international
trade (i.e. reducing protectionism). Countries might negotiate these trade agreements using the world
trade organisation.
2. Improvements in communications technology- for example, the internet is making the
communications needed for international trade easier and cheaper.
3. A reduction in the real cost and time needed for the transportation of goods means that it's cheaper
to export and import. For example, due to the development of larger cargo ships.
4. The WTO has brought about an increase in global product standards, e.g. through agreements on
product standards, which allow consumers to have more confidence in imported goods.
5. Firms expanding overseas to exploit economies of scale.
6. Growth in international trading blocs, e.g. there is more trade now between EU countries.
7. More international specialisation- if countries specialise in making the products they are best at
making, this will encourage international trade.
8. Increasing investment by sovereign states- e.g. Norway invests some of its oil revenues in foreign
companies.
9. Governments wishing to obtain the benefits of increased trade- so, for example, a government
might provide incentives for foreign firms to encourage them to invest in their country.
10. An increased number of MNCs and the growth of their significance and influence.
Benefits of Globalisation
1. Economic growth – Access to larger markets allows firms to increase exports and achieve
economies of scale. Developing countries often experience higher GDP growth (e.g. China’s rapid
industrialisation).
2. Increased consumer choice – Consumers can access a wider range of goods and services at lower
prices due to international competition.
3. Technology and knowledge transfer – FDI from MNCs helps spread innovation and skills to
developing economies.
4. Job creation – MNCs investing in developing countries can create employment opportunities.
5. Lower production costs – Firms can outsource or relocate production to countries with lower labour
costs, leading to lower prices globally.
6. Cultural exchange – Greater connectivity leads to the sharing of ideas, lifestyles, and culture.
, Costs of Globalisation
1. Income inequality – Benefits of globalisation are unevenly distributed; skilled workers and capital
owners gain more than unskilled workers, widening the income gap (e.g. Gini coefficients rising in
some countries).
2. Structural unemployment – Offshoring and outsourcing can lead to job losses in developed
countries, especially in manufacturing.
3. Environmental damage – Increased production and transportation contribute to carbon emissions,
deforestation, and resource depletion.
4. Exploitation of labour – Workers in developing countries may face poor conditions, low wages, and
limited rights (e.g. sweatshops).
5. Loss of cultural identity – Global brands and media may erode local traditions and cultures.
6. Over-reliance on global supply chains – Shocks like COVID-19 exposed vulnerabilities in
interconnected economies.
Positives of Multinational Corporations
1. Job creation – MNCs provide employment opportunities in host countries, often in regions with
high unemployment.
2. Transfer of skills and technology – They bring advanced technologies, management practices, and
skills to developing economies.
3. Increased investment (FDI) – MNCs stimulate local economies by investing in infrastructure and
supply chains.
4. Access to global markets – Local suppliers and workers benefit from integration into global value
chains.
5. Cheaper goods and services – Economies of scale can reduce production costs, leading to lower
prices for consumers worldwide.
6. Improved infrastructure – MNC operations often require and encourage improvements in roads,
ports, and utilities.
Negatives of Multinational Corporations
1. Exploitation of labour – MNCs may pay low wages, enforce poor working conditions, or avoid
local labour laws (e.g. sweatshops).
2. Environmental harm – Operations can lead to deforestation, pollution, and overuse of natural
resources in host countries.
3. Profit repatriation – Most profits are sent back to the home country, limiting benefits to host
economies.
4. Market dominance – Large MNCs can outcompete local businesses, reducing diversity and
harming small enterprises.
5. Tax avoidance – They may use tax havens and transfer pricing to avoid paying fair taxes in host
countries.
6. Cultural erosion – Global brands can overshadow local cultures and traditions.
Globalisation has a big impact on the environment
Globalisation has had significant environmental impacts, both positive and negative. On one hand, the
increase in global trade and production has led to higher carbon emissions, deforestation, and depletion of
natural resources due to the growing demand for goods and services worldwide. The expansion of global
supply chains and the rise of multinational corporations have often been associated with pollution and
Alevel economics
What is globalisation?
Globalisation refers to the increasing interconnectedness and interdependence of economies, cultures, and
populations across the world. It is driven by the expansion of international trade, investment, technology,
and the movement of people and ideas. In economics, globalisation is often defined as the process by which
goods, services, capital, and labour flow more freely across national borders, leading to the integration of
markets and the creation of a global economy. This process has accelerated in recent decades due to
advances in transport and communication technologies, trade liberalisation through organisations such as the
WTO, and the growth of multinational corporations. While globalisation can promote economic growth and
access to a wider variety of goods and services, it also raises concerns about inequality, environmental
sustainability, and the erosion of national sovereignty.
• Developed economies (also called advanced economies) are nations with high levels of income per
capita, diversified industrial and service sectors, and high standards of living. They typically have
well-established infrastructure, strong institutions, and low levels of poverty. Examples include the
UK, USA, and Germany.
• Developing economies are countries with lower income per capita, less industrialisation, and lower
Human Development Index (HDI) scores. They often rely on primary industries (like agriculture or
mining), have weaker infrastructure, and face challenges such as poverty, political instability, and
limited access to healthcare and education. Examples include Ethiopia and Nepal.
• Emerging economies are countries in transition from developing to developed status. They are
characterised by rapid economic growth, increasing industrialisation, and improving living standards.
They often attract significant foreign direct investment (FDI) and are becoming major players in
global trade. Examples include China, India, and Brazil (often referred to as part of the BRICS
nations).
Multinational Corporations (MNCs) and Globalisation
Multinational corporations (MNCs) are firms that operate in more than one country, with headquarters in
their home nation and subsidiaries, factories, or offices in others. Examples include Apple, Coca-Cola, and
Toyota. MNCs are both a driver and a product of globalisation.
MNCs promote globalisation by:
• Spreading technology and innovation across borders as they set up production in different
countries.
• Facilitating trade and investment flows, as they move goods, services, and capital around the
world.
• Creating global supply chains, where raw materials, components, and labour come from multiple
nations (e.g. Apple designing in the US, manufacturing in China, sourcing parts globally).
• Influencing cultural globalisation through branding and advertising, leading to the spread of
similar consumer habits worldwide.
MNCs benefit from globalisation through:
, • Access to larger markets and economies of scale.
• The ability to locate production where costs are lowest (e.g. cheaper labour in developing countries).
• Taking advantage of trade liberalisation and reduced barriers.
However, MNCs are also criticised for:
• Exploiting workers in developing countries (low wages, poor working conditions).
• Contributing to environmental degradation.
• Having too much influence over governments and local economies.
Causes contributing to globalisation
1. Trade liberalisation- this is the reduction or removal of tariffs and other restrictions on international
trade (i.e. reducing protectionism). Countries might negotiate these trade agreements using the world
trade organisation.
2. Improvements in communications technology- for example, the internet is making the
communications needed for international trade easier and cheaper.
3. A reduction in the real cost and time needed for the transportation of goods means that it's cheaper
to export and import. For example, due to the development of larger cargo ships.
4. The WTO has brought about an increase in global product standards, e.g. through agreements on
product standards, which allow consumers to have more confidence in imported goods.
5. Firms expanding overseas to exploit economies of scale.
6. Growth in international trading blocs, e.g. there is more trade now between EU countries.
7. More international specialisation- if countries specialise in making the products they are best at
making, this will encourage international trade.
8. Increasing investment by sovereign states- e.g. Norway invests some of its oil revenues in foreign
companies.
9. Governments wishing to obtain the benefits of increased trade- so, for example, a government
might provide incentives for foreign firms to encourage them to invest in their country.
10. An increased number of MNCs and the growth of their significance and influence.
Benefits of Globalisation
1. Economic growth – Access to larger markets allows firms to increase exports and achieve
economies of scale. Developing countries often experience higher GDP growth (e.g. China’s rapid
industrialisation).
2. Increased consumer choice – Consumers can access a wider range of goods and services at lower
prices due to international competition.
3. Technology and knowledge transfer – FDI from MNCs helps spread innovation and skills to
developing economies.
4. Job creation – MNCs investing in developing countries can create employment opportunities.
5. Lower production costs – Firms can outsource or relocate production to countries with lower labour
costs, leading to lower prices globally.
6. Cultural exchange – Greater connectivity leads to the sharing of ideas, lifestyles, and culture.
, Costs of Globalisation
1. Income inequality – Benefits of globalisation are unevenly distributed; skilled workers and capital
owners gain more than unskilled workers, widening the income gap (e.g. Gini coefficients rising in
some countries).
2. Structural unemployment – Offshoring and outsourcing can lead to job losses in developed
countries, especially in manufacturing.
3. Environmental damage – Increased production and transportation contribute to carbon emissions,
deforestation, and resource depletion.
4. Exploitation of labour – Workers in developing countries may face poor conditions, low wages, and
limited rights (e.g. sweatshops).
5. Loss of cultural identity – Global brands and media may erode local traditions and cultures.
6. Over-reliance on global supply chains – Shocks like COVID-19 exposed vulnerabilities in
interconnected economies.
Positives of Multinational Corporations
1. Job creation – MNCs provide employment opportunities in host countries, often in regions with
high unemployment.
2. Transfer of skills and technology – They bring advanced technologies, management practices, and
skills to developing economies.
3. Increased investment (FDI) – MNCs stimulate local economies by investing in infrastructure and
supply chains.
4. Access to global markets – Local suppliers and workers benefit from integration into global value
chains.
5. Cheaper goods and services – Economies of scale can reduce production costs, leading to lower
prices for consumers worldwide.
6. Improved infrastructure – MNC operations often require and encourage improvements in roads,
ports, and utilities.
Negatives of Multinational Corporations
1. Exploitation of labour – MNCs may pay low wages, enforce poor working conditions, or avoid
local labour laws (e.g. sweatshops).
2. Environmental harm – Operations can lead to deforestation, pollution, and overuse of natural
resources in host countries.
3. Profit repatriation – Most profits are sent back to the home country, limiting benefits to host
economies.
4. Market dominance – Large MNCs can outcompete local businesses, reducing diversity and
harming small enterprises.
5. Tax avoidance – They may use tax havens and transfer pricing to avoid paying fair taxes in host
countries.
6. Cultural erosion – Global brands can overshadow local cultures and traditions.
Globalisation has a big impact on the environment
Globalisation has had significant environmental impacts, both positive and negative. On one hand, the
increase in global trade and production has led to higher carbon emissions, deforestation, and depletion of
natural resources due to the growing demand for goods and services worldwide. The expansion of global
supply chains and the rise of multinational corporations have often been associated with pollution and
