How has the world economy become so interconnected?
What globalisation is, its causes, the role of multinational companies, and the benefits and drawbacks of globalisation for countries, firms and workers.
A focused answer for AQA GCSE Economics on what globalisation is, its causes, the role of multinational companies, and the benefits and drawbacks of globalisation.
Reviewed by: AI editorial process; not yet individually human-reviewed
Have a quick question? Jump to the Q&A page
Jump to a section
What this dot point is asking
AQA wants you to define globalisation, explain its causes, explain the role of multinational companies, and evaluate the benefits and drawbacks of globalisation for countries, firms and workers. Evaluation questions here reward balanced answers that recognise globalisation creates both winners and losers.
What globalisation is
Interdependence means a shock in one country spreads to others: the 2008 financial crisis and the disruption to supply chains during the COVID-19 pandemic both showed how closely linked national economies have become.
Causes of globalisation
Each cause lowers the cost or difficulty of doing business across borders, so trade and investment have grown faster than world output for most of the past few decades.
The role of multinational companies
MNCs drive globalisation by building global supply chains in which parts are made in several countries before final assembly, by moving capital and technology across borders, and by creating jobs in the countries where they locate.
Benefits and drawbacks of globalisation
Benefits:
- Lower prices and more choice for consumers as goods are made where costs are lowest.
- Jobs and investment in countries where MNCs locate.
- Faster economic growth and the spread of technology and skills.
- Economies of scale as firms sell to a worldwide market.
Drawbacks:
- Job losses in developed countries whose industries cannot compete with cheaper producers abroad.
- Risk of exploitation, with low wages and poor conditions in some factories.
- Environmental damage from increased production and global transport.
- Possible wider inequality between and within countries, with profits flowing to MNC shareholders.
Worked example
Try this
Q1. Define globalisation. [2 marks]
- Cue. The growing integration and interdependence of the world's economies through trade, investment and technology.
Q2. Explain one drawback of globalisation for workers in a developed country. [3 marks]
- Cue. Firms may move production abroad to cut costs, causing job losses in industries that cannot compete.
Exam-style practice questions
Practice questions written in the style of AQA exam questions on this dot point, with worked answer explainers. The year tag is the paper they imitate, not the source.
AQA 20199 marksAnalyse the benefits and drawbacks of a multinational company building a factory in a developing country.Show worked answer →
A multinational company (MNC) building a factory brings benefits: it creates jobs, brings investment and new technology, raises incomes and adds tax revenue for the host government, which can fund public services.
But there are drawbacks: profits may be sent back to the home country (profit repatriation), working conditions and wages may be low, local firms may be unable to compete, and there can be environmental damage.
A 9 mark answer develops at least one benefit and one drawback with clear chains of reasoning and reaches a balanced judgement, perhaps noting it depends on how effectively the host government regulates the MNC and taxes its profits.
AQA 20216 marksExplain two causes of the growth of globalisation in recent decades.Show worked answer →
One cause is cheaper and faster transport, especially container shipping and air freight, which has cut the cost of moving goods around the world and made global supply chains viable.
A second is improved communications, above all the internet, which lets firms coordinate production across countries instantly and lets services be delivered remotely.
Other causes are the removal of trade barriers through trade agreements and the growth of multinational companies. A 6 mark answer names two causes and explains how each made the world economy more integrated. Markers reward the link from the cause to greater trade and interdependence.
Related dot points
- The reasons for international trade, the meaning of imports and exports, the balance of payments, the role of exchange rates, and the benefits and drawbacks of trade.
A focused answer for AQA GCSE Economics on why countries trade, imports and exports, the balance of payments, exchange rates, and the benefits and drawbacks of trade.
- What economic growth is, the causes of growth, the stages of the economic cycle, and the benefits and costs of economic growth.
A focused answer for AQA GCSE Economics on what economic growth is, its causes, the stages of the economic cycle, and the benefits and costs of growth.
- The four main macroeconomic objectives, what gross domestic product (GDP) measures, how living standards are judged, and the possible conflicts between objectives.
A focused answer for AQA GCSE Economics on the main macroeconomic objectives, what GDP measures, how living standards are assessed, and the conflicts between objectives.
- What unemployment is and how it is measured, the main types and causes of unemployment, the costs of unemployment, and the meaning of full employment.
A focused answer for AQA GCSE Economics on what unemployment is, how it is measured, the main types and causes, the costs of unemployment, and the idea of full employment.
- The role of money in the wider economy, the functions of commercial banks and the central bank, the importance of financial markets, and how the financial sector supports households and firms.
A focused answer for AQA GCSE Economics on the role of money in the economy, the functions of commercial banks and the central bank, financial markets, and how the financial sector supports households and firms.
Sources & how we know this
- AQA GCSE Economics (8136) specification — AQA (2017)