Pearson Edexcel International GCSE Economics: Globalisation, MNCs and FDI (4EC1) – Revision Notes

These notes condense section 2.2.1 of the Pearson Edexcel International GCSE Economics (4EC1) specification, Issue 3: globalisation, multinational corporations (MNCs) and foreign direct investment (FDI). The specification has a single tier, so nothing here is tier-limited. For full explanations and worked examples read the study guide. Then try the practice questions, the Edexcel IGCSE Economics hub, the printable checklist and the free 10-minute diagnostics. All figures are invented.

Definitions to learn word for word

Term	Definition
Globalisation	Increased integration and interdependence of economies
Multinational corporation (MNC)	A firm that carries on business in two or more countries
Foreign direct investment (FDI)	Investment by a firm in business assets (building a plant, buying a majority stake) in another country
Home country	Where an MNC is based
Host country	A country where an MNC operates but is not based
Tax avoidance	Using legal rules to reduce a tax bill

2.2.1 b) Reasons for globalisation

1. Fewer tariffs and quotas: imports are cheaper or less limited.
2. Cheaper transport: goods can travel further for less.
3. Cheaper communication: firms can manage and sell across borders at low cost.
4. More significant MNCs: they spread production and sales across countries.

Chain: cost barrier falls → price of imports falls → trade rises → economies depend more on one another.

Mini calculation: landed cost

Landed cost = factory price + transport + tariff.

A good costs 50 at the factory. Transport is 4. The tariff is 8% of the factory price.

• Before: 50 + 4 + (0.08 × 50) = 50 + 4 + 4 = 58.
• Transport halves to 2 and the tariff falls to 3%: 50 + 2 + 1.5 = 53.5.
• Fall = 4.5, which is 4.5 ÷ 58 × 100 = 7.8%.

2.2.1 c) Impacts: a quick grid

Impact	Likely winners	Likely losers or limits
Rising living standards	Households with growing incomes	Those whose jobs disappear
Greater choice	Consumers	Local specialist producers
Lower prices	Consumers; firms buying inputs	Domestic firms that cannot match them
Reduced communication costs	Firms, families, workers abroad	People without access
Closing of traditional industries	Consumers (lower prices)	Workers and towns tied to the industry
Environmental impact	Possibly cleaner methods spread	More emissions, resource use, waste

Name the group affected in each case: countries, governments, producers, consumers, workers or the environment. The specification asks about all six.

Method: a balanced impact paragraph

1. Make a point (lower prices).
2. Expand it (consumers can buy more with the same income).
3. Show a cost or limit (local firms lose sales and jobs).
4. Say what decides the balance (speed of retraining, strength of rules).

2.2.1 d) Why MNCs and FDI emerge

Reason	One-line explanation
Economies of scale	Selling in many markets lowers average cost
Natural resources and cheap materials	Production near supply cuts input and transport costs
Lower transport and communication costs	Distant plants become easier to run
Access to customers in different regions	Production near buyers can avoid import taxes and delivery costs

Mini calculation: scale

A firm has fixed costs of 60 million and a variable cost of 25 a unit.

• At 2 million units: (60m + 50m) ÷ 2m = 55 a unit.
• At 8 million units: (60m + 200m) ÷ 8m = 32.5 a unit.
• Fall = 22.5 ÷ 55 × 100 = 40.9%.

Advantages and disadvantages of MNCs and FDI

Advantages	Disadvantages
Creating jobs	Avoiding paying taxes
Investing in infrastructure	Environmental damage
Developing skills	Moving profits abroad
Developing capital	Pressure on local firms
Contributing to taxes	Jobs may leave if the firm moves

Mini calculation: percentage change in FDI

FDI inflow rises from 24 million to 30 million.

• Change = 30 − 24 = 6.
• Percentage change = 6 ÷ 24 × 100 = 25%.

Evaluation checklist

• Is the benefit short term or lasting?
• What share of inputs comes from local suppliers?
• Are workers trained for better jobs, or only used for low-paid tasks?
• Does the host have strong rules on pollution and tax?
• Compare the gains in jobs and tax with the costs of profit sent abroad and damage to the environment, then reach a judgement.

Mini calculation: jobs and unemployment

A town has a labour force of 10,000 and 600 unemployed. An old factory closes with 300 jobs lost, and a new MNC plant opens with 200 jobs.

• Net change in jobs = 200 − 300 = −100.
• Unemployed = 600 + 100 = 700 (if the labour force is unchanged).
• Rate = 700 ÷ 10,000 × 100 = 7%, up from 6%.

Mini calculation: purchasing power

Income is 1,800 and a basket costs 300, so 6 baskets are affordable. Cheaper imports cut the basket price by 10% to 270.

• 1,800 ÷ 270 = 6.67 baskets, an increase of 11.1%.

The same income buys more, so living standards rise, provided the income itself holds up.

Mini calculation: profit and tax moved

A subsidiary has 50 million profit and the host taxes at 20%.

• Tax without any transfer: 0.20 × 50 = 10 million.
• If 30 million is charged as a fee to a group company in a country taxing at 4%: host tax = 0.20 × 20 = 4 million. Fee tax = 0.04 × 30 = 1.2 million. Group total = 5.2 million.
• Group saves 10 − 5.2 = 4.8 million. The host loses 10 − 4 = 6 million.

How to answer by command word

The specification’s command-word table gives the shape of each answer.

Command word	What the table asks for	How to use it here
State	An answer no longer than a sentence	“Fewer tariffs.”
Describe	Identify and briefly develop a consequence	“Lower shipping costs, so imports are cheaper.”
Explain	A fact, then two further developments of it	Point → because → so
Analyse	An extended answer expanding and exploring a concept	Build a chain, then a limit
Assess	An extended answer weighing up factors using given information	Use the data in the question
Evaluate	An extended answer reaching a supported conclusion	Decide, and give the reason

Chains to practise saying aloud

• Cheaper shipping → lower landed price → more imports → more trade → greater interdependence.
• FDI plant opens → direct jobs → wages spent locally → more demand for local shops and suppliers.
• Cheaper imports → traditional industry loses sales → closure → workers need new skills → short-run unemployment.
• Low-tax route used → lower taxable profit in the host → less tax for public services.

Must-know distinctions

• Globalisation is the process. An MNC is one of the firms that drives it. FDI is how an MNC sets up abroad.
• Tax avoidance is legal. Tax evasion is not.
• FDI gives control. A small share purchase abroad does not.
• Home country and host country feel different effects: jobs may leave the home country while the host gains them.

Quick self-test

1. Define globalisation.
2. State two reasons for globalisation.
3. A good costs 40 at the factory, transport is 3 and the tariff is 10% of the factory price. Calculate the landed cost.
4. State two reasons why firms set up plants abroad.
5. What is meant by FDI?
6. FDI inflow falls from 50 million to 45 million. Calculate the percentage change.
7. State one advantage and one disadvantage of an MNC for a host country.
8. A subsidiary makes 20 million profit and the host tax rate is 30%. A 10 million fee is paid to a group company abroad, reducing the taxable profit. How much host tax is lost?
9. Give one way globalisation may harm the environment.
10. Explain one way a traditional industry may close because of globalisation.

Answers

1. Increased integration and interdependence of economies.
2. Any two: fewer tariffs and quotas, cheaper transport, cheaper communication, more significant MNCs.
3. 40 + 3 + (0.10 × 40) = 40 + 3 + 4 = 47.
4. Any two: economies of scale, access to natural resources or cheap materials, lower transport and communication costs, access to customers in different regions.
5. Investment by a firm in business assets in another country.
6. (45 − 50) ÷ 50 × 100 = −10%.
7. Advantage: for example, creating jobs. Disadvantage: for example, moving profits abroad.
8. Tax before: 0.30 × 20 = 6. After: 0.30 × 10 = 3. Loss = 3 million.
9. For example: more production and transport raise emissions, or weak rules allow pollution.
10. Cheaper imports lower the price of the product → the local firm loses sales and cannot cover its costs → it cuts jobs or shuts.

Where marks are usually lost

• A definition of globalisation that gives only trade, or only one of the two ideas.
• Confusing a tariff (a tax on imports) with a quota (a limit on the amount imported).
• Giving a list for an Explain question when the specification’s command-word table asks for a statement with two expansion points.
• Showing the final answer only on a Calculate question, when the table says workings should be given.
• Forgetting to convert a percentage fall into a negative number or to say “fall”.
• Calling something an MNC advantage with no link to the host country.
• Claiming that profit moved abroad always means less tax. Say which tax and which country.
• Ending an evaluation with “it depends” and no stated decision factor.

Official syllabus

Pearson Edexcel International GCSE in Economics (4EC1), specification Issue 3, February 2026, published by Pearson Education Limited: section 2.2.1 Globalisation.