The big picture
What is globalisation?
Globalisation is the increasing interdependence of national economies through cross-border trade in goods and services, flows of capital and labour, and the spread of technology and ideas. It is the dominant force shaping the global economy in Unit 4 of Edexcel IAL Economics (WEC14) and can be examined anywhere on the paper, from the five-part data response in Section B to a 20-mark Evaluate essay in Section C.
Globalisation is not new — the first wave ran from the 1870s to 1914 — but it has accelerated dramatically since the 1980s. For WEC14, you need to explain the causes, weigh up the effects on different types of country, and evaluate the role of transnational corporations.
The five causes, and one common trap
Causes of globalisation
Strong WEC14 answers identify the most important cause for the specific context of the question and explain why — not just list them.
Trade liberalisation
Reduction of tariffs, quotas and non-tariff barriers. Driven by the WTO (formed 1995, replacing GATT) and regional trade agreements like NAFTA (now USMCA), the EU, ASEAN and the African Continental Free Trade Area.
- Real example
- China joining the WTO in 2001 opened it to global trade flows that drove four decades of growth.
Technology and communications
The internet, cloud computing, containerisation, and cheaper air and sea freight have collapsed the cost of moving goods, capital, information and services across borders. Fibre-optic cables and satellites made real-time global coordination possible.
- Real example
- Containerisation cut shipping costs by ~90% between 1950 and 2000. A call from London to New York in 1930 cost £300 in today’s money; in 2026 it is free over the internet.
Growth in the number and size of trading blocs
Spec 4.3.1 names trading blocs as a cause in their own right, separate from general trade liberalisation. Members remove internal tariffs and align standards, so trade is created between them. Blocs have both widened, taking in more members, and deepened, moving from free trade areas to customs unions and single markets.
- Real example
- The African Continental Free Trade Area, in force since 2021, links 54 countries and about 1.4 billion people. ASEAN has moved from a free trade area to an economic community.
Growth of transnational corporations (TNCs)
TNCs drive globalisation by operating supply chains across borders — designing in one country, sourcing components from many, assembling in low-cost locations, and selling worldwide. They shift profits, technology and jobs internationally.
- Real example
- Apple designs in California, sources components from over 40 countries, assembles in China and Vietnam, and sells in more than 170 markets.
Political change and opening of markets
The fall of the Soviet Union (1991), China’s economic reforms (from 1978), India’s liberalisation (1991), and the opening of Eastern Europe created billions of new consumers and workers in the global economy.
- Real example
- India’s 1991 reforms lifted hundreds of millions out of poverty and made the country the world’s third-largest economy by PPP.
Migration (a characteristic, not a cause)
Read the spec carefully here. 4.3.1 lists rising migration under the CHARACTERISTICS of globalisation, alongside trade as a share of GDP and the growth of TNCs and FDI. It is not one of the five named causes. Examiners reward students who can tell a characteristic from a cause, so treat migration as evidence that globalisation is happening rather than as an explanation of why.
- Real example
- Remittances from migrants in 2024 exceeded $650bn globally, dwarfing official aid and rivalling foreign direct investment into many developing economies.
Effects on the rich world
Effects on developed countries
Large consumer gains and substantial adjustment costs. A good answer names winners and losers explicitly.
- Positive: Lower consumer prices through access to cheaper imports (China, Vietnam, Bangladesh).
- Positive: Greater product variety and choice.
- Positive: Increased competition drives innovation and productivity.
- Positive: Access to larger export markets for firms with comparative advantage (e.g. UK financial services).
- Positive: Inward FDI creates jobs and brings capital and technology.
- Negative: Deindustrialisation as manufacturing moves to lower-cost countries (e.g. UK Midlands, US Rust Belt).
- Negative: Structural unemployment in declining industries.
- Negative: Downward pressure on wages for low-skilled workers (Stolper-Samuelson theorem).
- Negative: Rising inequality within developed countries.
- Negative: Cultural homogenisation and loss of local identity.
Effects on the developing world
Effects on developing countries
Associated with the largest reduction in poverty in human history — but also significant environmental and social costs.
- Positive: Access to foreign capital and technology through FDI.
- Positive: Job creation in export industries (manufacturing, services).
- Positive: Technology and skills transfer.
- Positive: Higher growth rates, poverty reduction (China, India, Vietnam).
- Positive: Integration into global supply chains.
- Negative: Exploitation of cheap labour and poor working conditions.
- Negative: Environmental damage from unregulated industrialisation.
- Negative: Dependency on foreign firms that can relocate.
- Negative: Growing inequality within countries as gains concentrate in urban/export sectors.
- Negative: Brain drain as skilled workers emigrate.
- Negative: Vulnerability to global shocks and capital flight.
Transnational corporations
TNCs and globalisation
Both a cause and an outcome of globalisation. Same firm can bring jobs and FDI while extracting profit and avoiding tax.
- Positive: Job creation, often at wages above the local average.
- Positive: Tax revenue for the host government.
- Positive: Technology transfer and training of local workforce.
- Positive: Investment in infrastructure that benefits the wider economy.
- Positive: Productivity spillovers to local firms.
- Negative: Profit repatriation — profits flow back to the home country, not reinvested locally.
- Negative: Transfer pricing to shift tax liability to lower-tax jurisdictions.
- Negative: Exploitation of weaker labour and environmental rules.
- Negative: Crowding out of local firms that cannot compete on scale.
- Negative: Political influence disproportionate to a firm’s direct economic contribution.
See related topics: Trade and the Global Economy and Balance of Payments & Exchange Rates.
Top-band marks
How to evaluate globalisation in IAL exam answers
Strong evaluation acknowledges that globalisation is not inherently good or bad — its effects depend on context, policy choices and whose interests are counted.
- It depends on the country
- China and Vietnam have gained huge growth; sub-Saharan Africa has seen much smaller benefits.
- It depends on the industry
- Consumers gain from cheap imports; workers in industries that are outcompeted lose.
- Short-run vs long-run
- Adjustment costs come first; productivity gains come later. Balance depends on retraining, safety nets, investment.
- Distribution of gains
- The average is positive, but the average is misleading if gains go to a small number of winners.
- Regulation and institutions
- Gains are larger where property rights, labour standards and environmental rules are strong.
- Is globalisation reversing?
- Slowbalisation, friendshoring and rising geopolitical tension are reshaping trade patterns — top-end evaluation.
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Characteristics of globalisation
Causes of globalisation
Effects of globalisation
Exam practice
Exam-style practice questions
Define the term 'foreign direct investment'. (2 marks)
Two marks means two separate things to say, and the second is not a rewording of the first. Before writing, ask what separates this from any other money crossing a border — plenty of money does, and only some of it is direct investment. An example will not substitute for either half. Foreign direct investment is spending by a firm on productive assets in another country (1 mark) — a plant, machinery, land, or a holding in an existing company — together with control of those assets (1 mark), which is what the word direct is doing. An answer that says "investing money abroad" has neither half: it does not say what is bought, and it does not say who then decides what the asset does.
An economy exports $66.0bn and imports $54.0bn in a year when its GDP is $150.0bn. Ten years earlier the same figures were $20.0bn, $16.0bn and $72.0bn. Calculate trade as a proportion of GDP in each year, and the change between them. (4 marks)
Four figures to combine and two to compare, so set the work out as two calculations of the same kind rather than one long one. Appendix 6 advises showing workings for a Calculate, and here the workings are where the credit is. Decide first what goes on the top of the fraction — the two trade flows are added, not netted off — and keep both years in the same units. Trade today is $66.0bn + $54.0bn = $120.0bn (1 mark), which against GDP is $120.0bn ÷ $150.0bn × 100 = 80% (1 mark). Ten years earlier trade was $20.0bn + $16.0bn = $36.0bn, which against $72.0bn is 50% (1 mark). The change is 80% − 50% = 30 percentage points (1 mark). Two slips are common: netting exports against imports, which measures the trade balance and not openness; and reporting the change as "60% higher", which is a ratio of two ratios and answers a different question.
Explain one factor that has contributed to increased globalisation in the last fifty years. (4 marks)
One factor, taken properly, beats four listed. Appendix 6 says that explaining a reason or impact requires a two-stage chain of reasoning, so decide before you write what your two stages are: what the factor changed, and what that change did to trade. Choose the factor you can be most concrete about rather than the one that sounds largest. A full answer names the factor from the specification's list — trade liberalisation, the growth of trading blocs, political change, cheaper transport and communications, or the increased significance of TNCs (1 mark) — and then takes it in two stages. For cheaper transport: freight is a share of a good's delivered price (1 mark), and when it falls, goods whose value is low relative to their bulk become worth moving for the first time (1 mark), so the range of goods traded widens as well as the volume (1 mark). An answer that stops at "transport got cheaper so trade rose" has one stage and an assertion where the second should be.
Analyse the impact of foreign direct investment by a transnational company on a developing economy that receives it. (6 marks)
Appendix 6 says an Analyse focuses on depth rather than breadth and does not include evaluation, so this is one chain followed all the way rather than a list of effects with a verdict at the end. Pick the channel you can trace furthest — employment, supplier orders, tax or skills — and ask at each step what the money or the capability does next. Resist the urge to conclude. A strong chain on employment runs: the plant hires local workers (1 mark), which raises household incomes in the area (1 mark), which is spent locally, so demand for other local goods and services rises (1 mark), and those firms hire in turn (1 mark). The chain can then reach the tax take on both the wages and the additional activity (1 mark), and the skills the workers acquire, which stay in the economy even if the plant does not (1 mark). A chain that reaches "so the economy benefits" without any of the intermediate steps has asserted the conclusion; one that lists employment, tax, skills and technology in a line each has chosen breadth, which this command word specifically does not ask for.
Topic overview
What you need to know for 4.3.1
- Five causes, two big drivers
- Trade liberalisation and cheaper transport and communications are the engines. Trading blocs, political change and the rise of TNCs accelerate the trend. Migration is a characteristic of globalisation, not a cause.
- Winners and losers
- Globalisation has positive net gains globally but creates clear losers within countries. Naming both is what separates good from average answers.
- TNCs are double-edged
- Same firm can bring jobs and FDI while extracting profit and avoiding tax. Evaluation depends on host-country regulation.
- It can reverse
- Slowbalisation and friendshoring are reshaping global trade. Top-band answers acknowledge globalisation is not a one-way process.
Where it appears
WEC14 at a glance
Assessment details
- Unit
- 4.3.1 — WEC14
- Paper duration
- 2 hours
- Paper marks
- 80 marks
- % of A-Level
- 25%
- Question styles
- 4820
- Common in
- Synoptic essays drawing across all four units
- Sessions
- January, June, October
Common questions
Globalisation FAQ
What is globalisation?
Globalisation is the increasing interdependence and integration of the world’s economies, societies and cultures through cross-border trade, investment, migration and the spread of technology. For Edexcel IAL Economics, the exam focus is on economic globalisation — trade, FDI, TNCs and the international labour market.
What are the main causes of globalisation?
The Edexcel IAL Economics Unit 4 (WEC14) specification names five causes at 4.3.1.2: (1) trade liberalisation, (2) the increased number and size of trading blocs such as the EU and ASEAN, (3) political change and the opening of markets (the breakdown of the Soviet system, China’s reforms), (4) the reduced cost of transport and communications, and (5) the increased significance of transnational corporations (TNCs), together with the FDI they carry. Trade liberalisation and falling transport and communication costs are usually the two strongest drivers. Migration is examined as a characteristic of globalisation rather than a cause, and financial deregulation, though a real driver in the wider literature, is not one of the named spec causes.
What are the causes and effects of globalisation?
The causes are trade liberalisation, technology, financial deregulation, TNC growth, political change and migration. The effects differ for developed and developing countries: developed economies see lower consumer prices, deindustrialisation and rising inequality; developing economies see growth, poverty reduction, technology transfer, but also environmental damage, exploitation and dependency risks. A full answer evaluates both groups.
What are the causes of globalisation in economics?
In economic terms globalisation is caused by anything that reduces the cost of cross-border transactions or raises their returns: falling tariffs, cheaper shipping and communication, deregulation of finance, and the extension of property rights and rule of law into more countries. Political decisions (such as China’s market reforms) are the catalyst that lets these forces take effect.
What are the effects of globalisation?
Positive effects include higher global output, lower consumer prices, poverty reduction, technology diffusion and economies of scale. Negative effects include rising inequality within countries, deindustrialisation of some developed regions, environmental damage, exploitation of workers with weak protections, and vulnerability to global shocks. The net effect depends on country, policy and time horizon.
How should I evaluate globalisation in an IAL exam?
Good evaluation recognises that globalisation is not inherently good or bad. Discuss: (1) the country’s level of development, (2) the strength of its institutions and regulation, (3) which industries and workers benefit vs lose, (4) the short-run vs long-run balance, and (5) whether gains are redistributed. Use real-world examples — China’s export-led growth, UK deindustrialisation, the 2008 financial crisis, the global semiconductor supply chain.
What is the role of transnational corporations (TNCs) in globalisation?
TNCs are both a cause and a consequence of globalisation. They organise production across borders, integrate supply chains, shift capital and technology, and create jobs in host countries. They can bring investment and productivity gains, but also use transfer pricing to reduce tax bills and may exploit weaker regulation. The net impact depends heavily on the host country’s regulatory framework.
Is globalisation reversing?
Since the 2008 financial crisis, the COVID-19 pandemic and rising geopolitical tensions, some analysts argue for “deglobalisation” or “slowbalisation”. Global trade as a % of GDP has plateaued, and firms are rebuilding regional supply chains (“friendshoring”). This is a good evaluation point for higher-mark answers — globalisation is dynamic, not a one-way process.
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