Globalisation & Trade Restrictions
International Trade & Globalisation · 2 question types
Exam Frequency Analysis
Past paper frequency (2018 to 2024)
This topic accounts for approximately 6% of your exam marks.
New emphasis in the 2027 syllabus; globalisation, multinational companies and trade restrictions are now grouped as a distinct topic. Guidance based on specimen materials.
A multinational company (MNC) is a firm that owns or controls production in more than one country, for example a carmaker with factories in several nations.
MNCs are a major force in globalisation, and they affect both the host country (where they invest) and their home country (where they are based).
Advantages to the host country
- Employment. MNCs create jobs directly and through their local supply chains, raising incomes.
- Technology and skills. They bring advanced production methods and training, raising the productivity of local workers.
- Investment and output. They add capital the country could not raise itself, increasing output and economic growth.
- Tax revenue and exports. Their profits and sales can raise government tax revenue and boost the country's exports, helping the current account.
Disadvantages to the host country
- Profit repatriation. MNCs usually send most profits back to their home country rather than reinvesting them locally.
- Competition for domestic firms. Local firms may be unable to compete and close down, and a dominant MNC may later raise prices.
- Use of weak regulation. MNCs may exploit lower wages or weaker environmental rules in the host country.
Effects on the home country
The home country gains the repatriated profits and may keep high-skilled head-office and design jobs, but it can lose lower-skilled jobs as production moves abroad.
Discuss whether attracting MNCs benefits a country (8 marks)
What comes up: an 8-mark "Discuss whether or not attracting more foreign MNCs will benefit a country" (the specimen asks specifically about the effect on inflation). Both sides plus a judgement are required.
Write: Why it helps (and can lower inflation): MNCs often use advanced technology and well-trained workers, giving them low costs of production (1), which can reduce cost-push inflation (1); they add competition that restrains price rises (1); and producing locally can reduce the need for expensive imports (1). Why it may not: MNCs may drive out domestic producers and then raise prices (1); they may pay higher wages and increase exports, both raising total demand (1) and risking demand-pull inflation (1); and they may deplete natural resources, forcing the country to import them (1). Judgement: state whether the benefits outweigh the costs and why, for example that MNCs are likely to help if they raise productivity and competition more than they raise total demand.
Watch out: a one-sided answer is capped below the top band, and the points about higher wages and more exports belong on the "may not reduce inflation" side because they raise total demand.