OxfordAQA International AS and A-level Economics: Globalisation (9640) – Revision Notes

Condensed recall notes for OxfordAQA International AS and A-level Economics (9640), specification version 1.2, section 3.4.1.1 Globalisation. Section 3.4 is extra International A2 content. The study guide has the full explanations and the longer worked examples. Test yourself afterwards with the practice questions. Track coverage with the OxfordAQA Economics hub and the printable checklist, and use the free diagnostics to find gaps. Every figure here is made up for illustration.

Key definitions

Term	Meaning
Globalisation	Deepening links between national economies through cross-border movement of goods, services, finance, labour, technology and information
Openness ratio	(Exports + imports) / GDP × 100
FDI	Investment in physical assets or a lasting stake in a firm abroad
TNC	A business with production units in several countries, run as one group
Global supply chain	One product made in stages in several countries
Transfer pricing	The price charged between parts of the same TNC
Pollution haven	A country with weak rules that attracts dirty production
LEDC / MEDC	Less / more economically developed country
Unit labour cost	Hourly wage cost of each unit made (wage ÷ output per hour)

Characteristics in one line each

• Trade grows faster than output.
• Capital moves more freely, and FDI rises.
• Production is split across borders.
• Technology, ideas and data cross borders quickly.
• People migrate and send remittances.
• TNCs grow in size and reach.

Causes: ranked recall

1. Cheaper transport and communication (what is possible).
2. Trade liberalisation and trading blocs (what is allowed).
3. Free movement of capital.
4. Emerging economies opening up.
5. TNC cost-cutting and market-seeking.
6. Rising incomes and demand for variety.
7. Stable institutions that protect foreign investors.

Evaluation hook: causes work together. Argue which is the necessary condition, and say what the others add.

Consequences: mechanism chains

• LEDC gain: TNC invests → jobs, tax, skills → higher income and demand → growth. Needs pay above local alternatives, local sourcing and a tax share.
• LEDC loss: cheap imports and big brands → local firms squeezed. Profit sent abroad. Dependence on one TNC or one export.
• MEDC gain: cheaper imports → lower costs and prices → higher real incomes. Larger markets → scale.
• MEDC loss: import competition → closures → structural unemployment. Low-skilled wage pressure. Regional decline.
• Inequality: the gains go to skilled workers and owners of capital, and the losses to workers in exposed industries. Check within-country and between-country effects separately.

Environment: three effects

Effect	Direction	Example
Scale	Worse	More output, more emissions and resource use
Composition	Either	Dirty industry moves to a pollution haven, or an economy shifts to services
Technique	Better	Cleaner technology spreads, richer countries set tougher rules

Add transport emissions, habitat loss, global commons and free riding. Evaluate with regulation, growth speed and whether prices include the external cost.

TNCs: costs and benefits

Host benefits	Host costs
Capital, jobs, skills	Profit repatriation
Technology transfer	Crowding out of local firms
Tax revenue and exports	Footloose exit
Competition, lower prices	Weak standards, monopsony
Local supplier links	Political influence, transfer pricing

Political influence: lobbying for tax breaks or weaker rules, plus the threat to relocate. It is strongest when the TNC is large relative to the host economy and the government is weak or dependent on its investment.

Transfer pricing method:

1. Find the profit that can be moved.
2. Take the tax rates of the two countries.
3. Tax saved = profit moved × (high rate − low rate).
4. State who loses revenue (the high-tax country) and who gains.

Small worked reminders

Openness. Country P: exports 30, imports 36, GDP 100, so openness = 66 / 100 × 100 = 66%. Later: exports 45, imports 51, GDP 120, so openness = 96 / 120 × 100 = 80%. The change is 14 percentage points.

Index number. Inward FDI rises from 25 to 35. Index = 35 / 25 × 100 = 140. An index of 140 means 40% above the base.

Real change. Nominal pay rises 5% and prices 8%. Real change = 1.05 / 1.08 − 1 = −2.8%.

Repatriation. A TNC earns 40 m cu in a host and sends 75% home. Outflow = 30 m cu. Retained = 10 m cu.

Scale against technique. Output rises 30%, emissions per unit fall 20%. Total emissions = 1.30 × 0.80 = 1.04, so they rise 4%.

Unit labour cost. Site X pays 8 cu an hour for 4 units an hour: 2.00 per unit. Site Y pays 15 cu an hour for 10 units an hour: 1.50 per unit. The higher-wage site is 25% cheaper per unit.

Evaluation prompts

Use these when a question says “assess”, “evaluate” or “to what extent”.

• Short run or long run? Job losses arrive first, and retraining, new industries and cheaper goods take years.
• Size of the economy. A small LEDC may depend on one TNC. A large economy can bargain.
• Type of investment. A factory that buys local inputs and trains staff differs from an assembly plant that imports parts.
• Who captures the gain? Compare workers, owners, consumers, the government and the host country as a whole.
• Institutions. Strong tax, competition and environmental rules turn the same TNC into a bigger gain.
• Counterfactual. Would the country be better off with no investment, or with investment on worse terms?
• Measurement. A rising average (GDP, openness) can hide a falling income for the poorest group.

Mini case: assessing a TNC plant

A TNC opens a plant in a small LEDC (illustrative). Build an answer in this order:

1. Gains: 800 jobs at wages above the local average; tax; skills; exports.
2. Costs: most profit sent abroad; parts imported; local rivals close; pollution from the site.
3. Net judgement: the gain is larger if wages beat the next-best job, if inputs are bought locally and if the government taxes the profit. Say which condition matters most and why.
4. Political point: if the TNC is the country’s largest employer, it can ask for tax breaks, and the government may give them for fear of losing the jobs.

Transfer pricing in a table

Step	Question	Example
1	Which country taxes more?	Country H, 30%
2	Which taxes less?	Country L, 10%
3	Which way should the internal price move?	Higher price charged by the subsidiary in L, so profit lands in L
4	How much tax is saved?	Profit moved × 20 percentage points
5	Who loses?	Government of H

If 40 m cu of profit moves, the saving is 40 × 0.20 = 8 m cu.

Quick self-test

1. State two characteristics of globalisation.
2. Country Q has exports of 18, imports of 22 and GDP of 80. Calculate its openness ratio.
3. Inward FDI rises from 10.0 to 11.5. Calculate the percentage change.
4. Inward FDI is 25 in the base year and 35 in a later year. Give the index number for the later year.
5. A TNC moves 30 m cu of profit from a country taxing at 40% to one taxing at 18%. Calculate the tax saved.
6. Nominal wages rise 5% and prices rise 8%. Calculate the real change in wages.
7. Output rises 30% and emissions per unit fall 20%. State the change in total emissions.
8. Name the three environmental effects of growth in trade.
9. Give one reason an LEDC may gain less from FDI than the headline figure suggests.
10. Explain why a TNC might choose a higher-wage site.

Answers

1. Any two: rising trade relative to output; larger capital flows or FDI; global supply chains; migration; technology and information flows; growth of TNCs.
2. (18 + 22) / 80 × 100 = 50%.
3. (11.5 − 10.0) / 10.0 × 100 = 15%.
4. 35 / 25 × 100 = 140.
5. 30 × (0.40 − 0.18) = 6.6 m cu.
6. 1.05 / 1.08 − 1 = −2.8% (to one decimal place), a real fall.
7. 1.30 × 0.80 = 1.04, so emissions rise 4%.
8. Scale, composition and technique.
9. Profits are sent abroad, the TNC imports its inputs, wages are low, or the tax take is small.
10. Unit labour cost depends on output per hour as well as the wage, and higher productivity, skills or reliability can make the dearer site cheaper per unit.

Where marks are usually lost

• Writing about trade only, and leaving out capital, people, technology and supply chains.
• Treating LEDCs or MEDCs as single blocks, with no winners and losers inside each.
• Describing benefits and costs without a judgement on which is bigger and why.
• Giving a headline wage rise without deflating it.
• Saying a fall in emissions per unit means a fall in total emissions.
• Defining transfer pricing but not showing the tax motive.
• Calling transfer pricing simply illegal. Say it is the use of non-market prices to shift profit, and that enforcement varies.
• Leaving out units, or mixing percentages and percentage points in an openness question.
• Giving a list of TNC effects with no link to the host country’s circumstances.

Official syllabus

OxfordAQA International AS and A-level Economics (9640), specification version 1.2, section 3.4.1.1 Globalisation. First teaching September 2020, first AS exams May/June 2021, first A-level exams May/June 2022.