Impact of Globalisation on Local and National Economies

What Impact of Globalisation on Local and National Economies covers

Impact of Globalisation on Local and National Economies is examined in Paper 2, Competing in the global economy, and in Paper 3, The economic environment and business. It covers multinational corporations and local labour markets, multinational corporations and local firms, multinationals, the local community and the environment, foreign direct investment, growth and the balance of payments, technology transfer, skills and business culture, multinationals and consumers, tax revenues and transfer pricing, stakeholder conflicts, pay and working conditions, emissions, waste disposal and supply chain ethics, ethical marketing: labelling and promotion and controlling multinational corporations.

The 11 subtopics

Each one has its own page.

• Multinational corporations and local labour marketsMultinational corporations and local wages, direct and indirect job creation, the local multiplier effect, paying above the going wage, pressure on local employers' conditions, footloose capital and plant closures, job quality, health and safety standards, working-condition criticisms, expatriate managers, cyclical output, and dependence on one employer.Open →
• Multinational corporations and local firmsHow multinational retailers take market share from local shops and undercut them, monopsony power over local suppliers, benefits to local firms, backward and forward linkages, productivity spillovers, crowding out, national sourcing, infant industries, dependence on one customer, joint ventures, competition in concentrated markets, and local innovation.Open →
• Multinationals, the local community and the environmentNegative externalities imposed on local communities, the marginal social and private cost diagram and welfare loss, over-production, positive community effects, corporate social responsibility as investment, greenwashing, the uncovered costs of displacement, resource extraction, the pollution haven argument, the race to the bottom, and local policies against external costs.Open →
• Foreign direct investment, growth and the balance of paymentsForeign direct investment, greenfield and brownfield, where it appears in the balance of payments, repatriated profits and the current account, trade balance effects, productive capacity and the AD/AS diagram, actual and potential growth, overstated benefits, GNI against GDP, exchange rate effects, location factors, trade blocs, hot money, investment incentives, and financing deficits.Open →
• Technology transfer, skills and business cultureTechnology transfer and its channels, long-run growth, human capital and why multinationals train local workers, final assembly with few skills, changing management practice, business culture and imposing a home culture, new business formation, inappropriate technology, licensing, patents, just-in-time supplier standards, and technology transfer as a condition of market access.Open →
• Multinationals and consumersConsumer benefits from multinational entry, economies of scale and lower prices, consumer surplus after a monopoly, temporary gains and predatory pricing, homogenisation of tastes, global branding and price, independent cafes against a global chain, local adaptation, product safety, market power in developing economies, international price discrimination, and exchange rate sensitivity.Open →
• Tax revenues and transfer pricingTax revenue from multinational investment, transfer pricing and profit shifting and calculating the tax saved, tax havens, avoidance against evasion, the arm's length principle, why tax authorities struggle, a global minimum corporation tax, tax holidays, the tax burden, tax competition, measures against aggressive tax planning, reputational effects, and disallowed management fees.Open →
• Stakeholder conflicts, pay and working conditionsStakeholders in a multinational, conflicts between shareholders and workers, host governments and customers, conflicts over time, the shareholder value model, the living wage against the minimum wage, criticism despite above-local pay, garment factory conditions, the case for and against low-wage factory work, relocation and bargaining power, ethical audits, the cost of a pay rise, and institutional investors.Open →
• Emissions, waste disposal and supply chain ethicsCarbon footprints and supply chain emissions, cap-and-trade schemes and permit prices, carbon taxes, polluting stages in weakly regulated countries, exported electronic waste, the circular economy, commercial reasons to cut packaging, extended producer responsibility, enforcing environmental agreements, labour exploitation and child labour, and the cost of policing supply chains.Open →
• Ethical marketing: labelling and promotionMisleading product labelling and how it causes market failure, information asymmetry, misleading environmental claims, mandatory nutrition labelling, inappropriate promotional activity, advertising demerit goods and the effect of an advertising ban, weaker marketing standards abroad, social media and unethical campaigns, regulatory responses, and voluntary ethical codes.Open →
• Controlling multinational corporationsWhy national governments struggle to control multinationals, regulatory capture and political influence, the threat of relocation, legal instruments and deterrent fines, pressure groups and their tactics, social media and its limits, self-regulation and its advantages and weaknesses, and international coordination.Open →

What you need to know

Answer each one before you reveal it.

Take Impact of Globalisation on Local and National Economies further

The same content, four other ways.

Commonly confused

Pairs that lose marks when they are blurred together.

• Greenfield investment vs Brownfield investment

  Greenfield investment: building an entirely new facility in the host country, which adds capacity and jobs that did not exist before. Brownfield investment: Buying or expanding a business or site that already exists in the host country, so it may add no new capacity or jobs at all.

• Financial account vs Current account

  Financial account: the part of the balance of payments that records purchases and sales of assets between countries, including direct investment in a foreign business. Current account: The part of the balance of payments that records trade in goods and services together with income flows such as profits and interest paid abroad.

• GDP vs GNI

  GDP: the total value of output produced inside a country's borders in a period, whoever owns the firms that produce it. GNI: The total earnings of a country's residents in a period, wherever in the world they are earned, so heavy foreign ownership makes this the smaller figure.

Questions from this topic

Each one with the model answer underneath.

1. 1

   What is a multinational corporation?

   Model answer

   A firm that owns or controls production, service or distribution facilities in more than one country, usually run from a headquarters in its home country.

2. 2

   How can the arrival of a multinational's factory raise wages in the local labour market?

   Model answer

   The multinational adds to the demand for labour in that area, and where local labour supply is relatively inelastic the extra demand bids the local wage rate up.

3. 3

   Distinguish between direct and indirect job creation when a multinational opens a plant in a region.

   Model answer

   Direct jobs are those on the multinational's own payroll, while indirect jobs are created in local suppliers and in the shops and services that the new wages support.

4. 4

   What is the local multiplier effect of a new distribution centre?

   Model answer

   Wages paid at the centre are spent in local shops and services, raising their revenue and employment, so the total rise in local income exceeds the wage bill itself.

5. 5

   Give two reasons a multinational may pay above the local going wage in a developing economy.

   Model answer

   It needs to attract and keep scarce skilled workers away from other employers, and it wants to protect its brand from accusations of exploitation.

6. 6

   Why might a multinational's presence worsen working conditions at local competing firms?

   Model answer

   Local firms facing lower-cost competition may try to survive by lengthening hours, using casual contracts or cutting spending on safety.

What is inside Levo

Six ways to work the same material.

Impact of Globalisation on Local and National Economies revision questions

What does Impact of Globalisation on Local and National Economies cover in Edexcel A-Level Economics B?

11 subtopics: multinational corporations and local labour markets, multinational corporations and local firms, multinationals, the local community and the environment, foreign direct investment, growth and the balance of payments, technology transfer, skills and business culture, multinationals and consumers, tax revenues and transfer pricing, stakeholder conflicts, pay and working conditions, emissions, waste disposal and supply chain ethics, ethical marketing: labelling and promotion and controlling multinational corporations. Each one has its own page with questions and model answers.

How is Impact of Globalisation on Local and National Economies organised?

By the Edexcel 9EB0 specification, subtopic by subtopic, so it matches the order you are taught it in.