Cambridge IGCSE Economics: International specialisation, globalisation, MNCs and free trade (0455) – Revision Notes

These notes condense sections 6.1.1, 6.1.2 and 6.2.1 to 6.2.3 of the Cambridge IGCSE Economics 0455 syllabus for examination in 2026. The course is not tiered. Methods, reasons and consequences of protection (6.2.4 to 6.2.6) are in a separate unit. For full explanations read the study guide, then test yourself with the practice questions. Other links: the Cambridge IGCSE Economics hub, the printable checklist and the free diagnostics. All figures are invented.

Key definitions

Term	Meaning
Specialisation at national level	A country concentrates on producing a narrow range of goods and services, and trades for the rest
Superior resource allocation	Resources go to the uses where they produce most output
Cheaper production methods	Lower cost per unit through better technology, cheaper inputs or large-scale output
Globalisation	Growing integration and interdependence of the world’s economies through trade, capital, labour, technology and information
Multinational company (MNC)	A firm that owns or controls production in more than one country
Home country	Where the MNC has its headquarters
Host country	A country where the MNC operates but is not based
Free trade	Trade between countries with no government barriers

6.1.1 Basis of specialisation

Two broad reasons, either or both:

1. Superior resource allocation: put land, labour and capital where they are most productive.
2. Cheaper production methods: lower unit cost, helped by economies of scale.

Method: find who should make what

1. Opportunity cost of good X = output of Y given up ÷ output of X gained.
2. The country with the lower opportunity cost of X should make X.
3. Gains need a trading ratio between the two countries’ opportunity costs.

Worked reminder

Country P makes 12 tonnes of tea or 6 machines per worker-year. Country Q makes 8 tonnes of tea or 8 machines. Each has 50 worker-years.

• Opportunity cost of 1 machine: P = 12 ÷ 6 = 2 tonnes of tea. Q = 8 ÷ 8 = 1 tonne. So Q should make machines and P should make tea.
• Before (half each): P makes 300 tea and 150 machines. Q makes 200 tea and 200 machines. Total 500 tea and 350 machines.
• After: P makes 50 × 12 = 600 tea. Q makes 50 × 8 = 400 machines. That is 100 more tea and 50 more machines.
• Trade at 1.5 tonnes of tea per machine. Q sells 160 machines for 240 tonnes. P ends with 360 tea and 160 machines (from 300 and 150). Q ends with 240 tea and 240 machines (from 200 and 200).

6.1.2 Advantages and disadvantages

	Advantages	Disadvantages
Consumers	Lower prices, wider choice, better quality	Prices of imports may rise if supply is disrupted
Firms	Bigger markets, economies of scale, lower average cost	Firms in industries that do not specialise cannot compete and may close
Economy	More output and income, export earnings, growth	Overspecialisation, structural unemployment, dependence on other countries

Worked reminder: average cost

Fixed cost 300,000, variable cost 11 per unit. At 20,000 units, total cost = 300,000 + 220,000 = 520,000, so average cost = 26. At 100,000 units, total cost = 300,000 + 1,100,000 = 1,400,000, so average cost = 14. Average cost falls by (26 − 14) ÷ 26 × 100 = 46.2%.

Worked reminder: overspecialisation

Country K exports 500 million units a year, of which one crop is 300 million. The crop price falls 30% and volumes stay the same. Crop earnings = 300 × 0.70 = 210 million. Total exports = 500 − 90 = 410 million. Total export earnings fall by 90 ÷ 500 × 100 = 18%.

6.2.1 Globalisation

• Definition: growing integration and interdependence of economies.
• Flows that link countries: goods and services, capital, labour, technology, information.
• Trade as % of GDP = (exports + imports) ÷ GDP × 100. Example: (25 + 31) ÷ 140 × 100 = 40%.

6.2.2 MNCs

	Benefits	Costs
Host country	Jobs, income, tax, technology and skills, exports, competition	Profits sent abroad, local firms squeezed out, weak pay or environmental standards, may leave
Home country	Profits returned, cheaper goods, bigger markets	Jobs moved abroad, less home investment, tax lost if profits are shifted

Worked reminder: profit flows

An MNC earns 50 million after tax in the host country and sends 70% home. Sent home = 0.70 × 50 = 35 million. Kept in the host = 15 million.

6.2.3 Benefits of free trade

• Consumers: lower prices, choice, quality.
• Producers: bigger markets, scale economies, cheaper inputs, pressure to be efficient.
• Economy: better allocation of resources, growth, jobs in export industries, foreign currency.
• Variety of countries: small economies reach bigger markets; resource-poor countries import what they lack; developing countries sell primary exports; advanced economies sell high-value goods.

Price effect example: price falls from 40 to 32, so change = (32 − 40) ÷ 40 × 100 = −20%.

Evaluation chains to learn

Use “so”, “which means” and “depends on” to link each step.

• Specialisation: resources move to their best uses, so output rises, which means higher incomes. But reliance on a narrow range of exports exposes the economy to price falls and job losses. The risk depends on how much income comes from one product and how easily workers can retrain.
• MNCs and the host country: the firm creates jobs and pays tax, so incomes and spending rise. But profits may be sent home and local firms may close. The balance depends on how much is bought locally, how long the firm stays and how well workers are treated.
• MNCs and the home country: profits return and prices may fall, but jobs may move abroad. The outcome depends on whether displaced workers find new jobs.
• Free trade: prices fall and choice widens, so consumers gain. Producers gain markets but face competition. The gain is largest where firms can compete and workers can move between industries.

Quick checks on layout

• A table of costs and benefits should always say for whom.
• A calculation needs its formula, your numbers put in, and a final answer with units.
• A “discuss” answer should end with a judgement that uses the evidence you gave.

Must-know distinctions

• Specialisation vs free trade: specialisation is how a country produces; free trade is the freedom to sell what it makes and buy what it needs.
• Home vs host: the host receives the factory; the home country receives the profits.
• Globalisation vs trade: trade is one part of globalisation. Globalisation includes capital, labour, technology and information.
• Benefit vs evaluation: every benefit has a condition. Name who gains and who loses.

Quick self-test

1. Define globalisation.
2. Give two broad reasons why a country might specialise.
3. Country M makes 20 shirts or 10 radios per worker-day. Country N makes 12 shirts or 8 radios. Calculate the opportunity cost of one radio in each country.
4. Which country in question 3 should make radios?
5. A firm has fixed costs of 90,000 and variable costs of 4 per unit. Calculate average cost at 30,000 units.
6. State one disadvantage of specialisation for an economy.
7. Define an MNC.
8. State one benefit and one cost of an MNC to a host country.
9. State one cost of an MNC to its home country.
10. Country W has exports of 60, imports of 70 and GDP of 400. Calculate trade as a percentage of GDP.
11. State one benefit of free trade for producers.
12. Explain why a developing country may gain from free trade.

Answers

1. The growing integration and interdependence of the world’s economies.
2. Superior resource allocation and cheaper production methods.
3. M: 20 ÷ 10 = 2 shirts. N: 12 ÷ 8 = 1.5 shirts.
4. Country N, because its opportunity cost (1.5 shirts) is lower.
5. Total cost = 90,000 + (4 × 30,000) = 210,000. Average cost = 210,000 ÷ 30,000 = 7.
6. Any one of: overspecialisation, structural unemployment, dependence on other countries.
7. A firm that owns or controls production in more than one country.
8. Benefit: jobs, income or tax. Cost: profits sent abroad, or local firms squeezed out.
9. Jobs may move abroad, or tax revenue may fall if profits are shifted.
10. (60 + 70) ÷ 400 × 100 = 32.5%.
11. Access to larger markets, economies of scale, cheaper inputs or pressure to be efficient.
12. It can sell primary exports abroad, earn foreign currency and import machinery that it cannot make.

Where marks are usually lost

• Defining specialisation as one worker doing one job. At national level it means a country concentrating production.
• Stating “cheaper” without saying why, such as economies of scale or lower labour cost.
• Giving a disadvantage of specialisation without a chain of reasoning, such as one export, then price fall, then lower income and jobs.
• Mixing up home and host country.
• Defining an MNC as a big firm, with no mention of operating in more than one country.
• Listing benefits of free trade for consumers only.
• Ignoring the data in a source and giving only general points.
• Giving one-sided answers to evaluation questions. State who gains, who loses and what the outcome depends on.

Official syllabus

Source: Cambridge IGCSE Economics 0455 syllabus for examination in 2026, version 2, published by Cambridge University Press & Assessment (Cambridge International), section 6.1 and sections 6.2.1 to 6.2.3.