OCR A Level Economics: Globalisation and multinational firms (H460) – Revision Notes

These notes condense the topic Globalisation from the OCR A Level Economics (H460) specification, Version 3.0 (June 2026), first assessment 2021, Component 2, Macroeconomics. All content is A Level. Full explanations and worked examples are in the study guide. Test yourself with the practice questions, check coverage on the checklist, see the OCR Economics hub, and take the free diagnostics. Every figure here is invented.

Key definitions

Term	Meaning
Globalisation	The process by which economies become more closely linked and more dependent on each other as goods, services, capital, people, technology and ideas cross borders
Foreign direct investment (FDI)	Lasting investment in productive assets in another country
Multinational firm	A firm with operations in two or more countries, directed from a home base
Emerging economy	A working term for a fast-growing, industrialising economy joining world markets
Developing economy	A lower-income economy, often reliant on primary products
Repatriation	Sending profit back to the owners’ home country
Transfer pricing	Prices set between parts of the same firm, which can move profit between tax regimes
Trade intensity	Trade relative to output

Characteristics in one list

Faster growth of trade than output; rising FDI; multinational firms and global supply chains; integrated financial markets; migration and remittances; technology and information flows; a rising share of world output and trade for emerging economies.

Causes in one list

Cheaper transport; information technology; trade liberalisation; capital liberalisation; the search of multinational firms for costs and markets; opening up of emerging economies; rising incomes.

Link each cause to a mechanism. For transport: lower cost per unit shipped, so distant production becomes profitable.

Formulas and methods

Task	Method
Percentage change	(new - old) / old x 100
Percentage-point change	new share - old share
Growth of output per head	Growth factor of GDP divided by growth factor of population, minus 1
Real change	(1 + nominal change) / (1 + price change) - 1
Payback of an offshoring move	Set-up cost / annual saving
Share of value added kept by residents	(Wages + taxes) / value added
Revenue effect of a price fall	Share of exports x percentage price fall
Spillover from a partner	Exports/GDP x share to partner x fall in partner’s import growth

Method boxes with reminders

Per head growth. GDP grows 5.0% and population 1.6%. Output per head grows 1.05 / 1.016 - 1 = 3.3%. Do not subtract and give 3.4% unless the question allows a rough figure.

Real wage. Money wages rise 4% and prices 6%. Real wages change by 1.04 / 1.06 - 1 = -1.9%. A pay rise can be a real cut.

Payback. A firm moves 150,000 units a year abroad and saves 12 a unit, a gain of 1.8 million a year. Set-up costs 9 million, so payback is 9 / 1.8 = 5 years. A shorter payback makes the move more likely, and a wage rise abroad lengthens it.

Spillover. Exports are 25% of GDP and 20% go to a slowing partner whose import growth falls by 4 percentage points. Effect on GDP growth: 0.25 x 0.20 x 4 = 0.2 percentage points.

Impact on developed, emerging and developing economies

Group	Main gains	Main costs
Developed	Cheaper goods, scale economies, competition, FDI and skills	Structural unemployment, pressure on low-skilled pay, inequality
Emerging	Export-led growth, FDI, technology, falling poverty	Dependence on foreign demand, inequality between regions, environmental damage, capital outflow risk
Developing	Markets, aid, investment, cheaper capital goods	Reliance on volatile primary exports, weak bargaining power, limited infrastructure, infant industries undercut

Chain of reasoning (developed economy). Cheaper imports lead to lower prices, which raise real incomes. But a home industry loses sales, firms cut jobs and workers have industry-specific skills, so structural unemployment rises. The costs are concentrated on a few regions while the gains are spread widely.

Chain of reasoning (developing economy). Opening to trade raises demand for its crop. It specialises, so exports concentrate on one product. A world price fall cuts earnings, and the economy has little else to sell. A 25% price fall for a product that is 60% of exports cuts total export earnings by 0.60 x 25 = 15%.

Evaluation points for any group. Starting point and institutions; policy response such as education and retraining; time period; distribution of gains within the economy; the counterfactual of not opening up; other causes such as technology.

Multinational firms

For host economies	Against host economies
Capital, jobs, higher pay	Profit repatriation
Technology and training spillovers	Transfer pricing and lower tax revenue
Tax and export earnings	Market power; crowding out local firms
Consumer choice and lower prices	Footloose behaviour; weaker standards where regulation is weak

For the home country: returns on investment and lower-cost inputs, against possible job losses at home. For the world economy: better allocation of capital and technology, against concentration of power and risk shifting.

Evaluation. Net effect depends on local linkages, tax rules, the host’s bargaining power, the type of FDI (new plant or takeover) and the alternatives. A good judgement names which condition matters most in the context given.

Value added reminder. A plant creates 80 of value added, of which 30 is profit belonging to foreign owners. Wages and taxes are the rest, so residents receive (80 - 30) / 80 = 62.5%. Output in the country is higher than income to its residents.

Emerging economies and others

Channels: demand for exports; commodity prices; cheaper goods; competition for investment; resource pressure; financial links.

A slowdown abroad hurts economies with high export dependence on that partner, particularly commodity exporters. It may help importers of those commodities through lower prices. Strong growth abroad can lift demand but intensify competition.

Evaluation. Size and concentration of trade links; type of goods; availability of other markets; exchange rate response; policy room to offset.

Method in steps: an “evaluate” answer

1. Define the key term in one line, such as globalisation or multinational firm.
2. Give two or three developed points on one side, each as a chain: cause, mechanism, effect on a named group.
3. Give two or three developed points on the other side in the same way.
4. Test the points against conditions: size of the economy, starting skills and institutions, policy response, time period, who gains within the economy.
5. Reach a judgement that names the deciding condition and says why it matters in the context given.

Use figures from the data where you can. A short calculation, such as a real wage change or a share of value added kept by residents, turns a claim into evidence.

Must-know distinctions

• Globalisation (the process) versus free trade (one policy and one channel).
• Output (GDP) versus income of residents (profit sent abroad is excluded from the latter).
• Growth of total output versus growth of output per head versus the distribution of income.
• Percentage change versus percentage-point change.
• Absolute gains for an economy versus gains for each group within it.

Quick self-test

1. Define globalisation.
2. World trade rises from index 100 to 260 while world output rises from 100 to 150. By what percentage does trade intensity rise?
3. An emerging group’s export share rises from 12% to 21%. State the change in percentage points and the relative rise.
4. GDP grows 6.5% and population 1.5%. Calculate growth of output per head.
5. Money wages rise 3.5% and prices 2%. Calculate the change in real wages.
6. A firm makes 80,000 units. Home cost is 31 and overseas cost including shipping is 24. Set-up costs 3.36 million. Find the payback period.
7. One mineral is 60% of exports and its price falls 25%. By how much do total export earnings fall?
8. Give two causes of globalisation.
9. Give two ways multinational firms may harm a host economy.
10. Spillover: exports are 25% of GDP, 20% go to a partner, and the partner’s import growth falls by 4 percentage points. Find the effect on GDP growth.

Answers

1. The process by which economies become more closely linked and dependent on each other as goods, services, capital, people, technology and ideas cross borders.
2. 260 / 150 = 1.733, so trade intensity rises 73.3%.
3. 21 - 12 = 9 percentage points; 21 / 12 - 1 = 75%.
4. 1.065 / 1.015 - 1 = 4.9%.
5. 1.035 / 1.02 - 1 = +1.5%.
6. Saving = (31 - 24) x 80,000 = 560,000 a year; payback = 3.36 million / 560,000 = 6.0 years.
7. 0.60 x 25 = 15%.
8. Any two: cheaper transport, information technology, trade liberalisation, capital liberalisation, opening up of emerging economies, multinational firm strategies.
9. Any two: profit repatriation, transfer pricing, market power, weaker standards, footloose exit.
10. 0.25 x 0.20 x 4 = 0.2 percentage points.

Where marks are usually lost

• Defining globalisation as trade only, or as a policy rather than a process.
• Listing causes without explaining how each one works.
• Describing gains and costs for “the economy” without separating developed, emerging and developing cases.
• Treating faster GDP growth as better living standards without checking population, distribution or profit sent abroad.
• Giving a conclusion that repeats “it depends” without naming what it depends on.
• Calculating with percentages that should be percentage points, or the reverse.
• Treating multinational firms as all good or all bad, with no reference to the host’s policies.
• Leaving the emerging-economy spillover question as a list of channels with no direction of effect on the other economy.

Official syllabus

OCR, A Level in Economics (H460) specification, Version 3.0 (June 2026), for first assessment in 2021, Component 2 content, area of study The global context, topic Globalisation.