The meaning and causes of globalisation, the role of multinational corporations, and the costs and benefits of globalisation for countries, firms and consumers.

What this dot point is asking

AQA wants you to define globalisation and its causes, explain the role of multinational corporations, and evaluate the costs and benefits of globalisation for countries, firms and consumers. This is a synoptic topic, so expect to link it to trade, development and the balance of payments.

The meaning and causes of globalisation

These forces reinforce one another. Cheaper shipping and communication make it profitable to split production into global value chains, in which components cross borders several times before final assembly. Lower tariffs make those flows cheaper still, and financial deregulation lets the investment that funds them move freely. The result is deeper interdependence, so a shock in one large economy now transmits quickly to others.

Multinational corporations

A multinational corporation (MNC) is a firm that produces or operates in more than one country (not merely a firm that exports). MNCs drive globalisation through foreign direct investment (FDI), bringing jobs, capital, technology and tax revenue to host countries, and they organise much of world trade through their global value chains. However, they raise concerns about profit repatriation (profits flowing back to the home country), tax avoidance through transfer pricing across subsidiaries, pressure on labour and environmental standards (the race to the bottom), and their market and political power over host governments.

Costs and benefits

• Benefits. Access to larger markets and economies of scale, lower prices and greater choice for consumers from cheaper imports, faster economic growth and development (the export-led growth of China, Vietnam and others), and the transfer of technology and skills that raises productivity.
• Costs. Structural unemployment in industries that cannot compete with low-cost imports, widening inequality within and between countries, the risk of a "race to the bottom" in standards and taxes, greater vulnerability to external shocks and financial contagion, and environmental damage from rising production and transport.

The crucial evaluative point is that the gains and losses are unevenly distributed: consumers and successful exporting firms tend to gain, while workers in import-competing industries and some developing-country producers can lose. The case for globalisation therefore depends partly on whether the winners compensate the losers through retraining and regional policy.