Business Economics · Globalisation and multinational business

Meaning and Drivers of Globalisation Explained for IAI Actuarial

Updated 11 October 2026 · Fact-checked

Globalisation is the growing integration of national economies through trade, investment, finance, people and ideas. Its drivers fall into three groups: technological (transport, communication), political (lower trade barriers, open policies) and economic (cheaper production abroad, larger markets, capital mobility). In exams, define it, name drivers by group, explain how each works, then add evidence.

Understand Meaning and Drivers of Globalisation

Globalisation is the process by which national economies become more closely linked. Goods, services, capital, labour, technology and information move across borders more freely. Firms treat the world, not one country, as their market and as their source of inputs.

Think of it as a fall in the cost of doing business across distance and borders. When the cost of shipping, calling, regulating or paying across borders falls, more cross-border activity becomes profitable. Every driver you learn is a way of cutting that cost or raising the reward.

The drivers are usually grouped in three:

Technological: cheaper and faster transport (containerisation, air freight), the internet and digital communication, and falling data and payment costs. These shrink distance and make it easy to coordinate supply chains and sell online.
Political: falling tariffs and quotas through multilateral trade rounds and the WTO, regional trade agreements, privatisation and market-oriented reforms, and the opening of formerly closed economies. India's liberalisation from 1991 is a standard example of a country opening up.
Economic: gaps in wages and costs between countries, economies of scale from selling to bigger markets, growth of multinational firms and foreign direct investment, liberalised capital markets, and rising incomes in emerging economies that create new demand.

Globalisation is measured with several indicators. Trade openness is the ratio of exports plus imports to GDP. Capital flows are measured by foreign direct investment and portfolio flows as a share of GDP. Others are the share of foreign-owned assets, migration and remittances, and composite indices that mix economic, social and political links. Broad trends include trade growing faster than output over long periods, the rise of global value chains, the growing weight of emerging economies, and growth in services and digital trade. Some periods show slowdowns or reversals, for example after financial crises, during rising protectionism and during the COVID-19 shock. Be careful to describe trends as tendencies, not as fixed facts.

Key rules to remember

Trade openness ratio: Openness = (Exports + Imports) ÷ GDP; Often shown as a percentage. A higher ratio means the economy is more exposed to trade. Small economies tend to have higher ratios than large ones.
FDI intensity: FDI intensity = FDI flows (or stock) ÷ GDP; Measures how much foreign investment an economy attracts or makes relative to its size.
Driver grouping: Drivers = Technological + Political + Economic; A checklist for structuring any answer. Not a numerical formula.

How to solve Meaning and Drivers of Globalisation questions

Use this method for definition, causes, measurement and trend questions on globalisation.

1Read the command word. 'Define', 'explain', 'discuss' and 'evaluate' need different depth.
2Give a one-sentence definition: growing integration of economies through flows of goods, services, capital, labour and ideas.
3Group drivers into technological, political and economic. Name at least one or two in each group.
4For each driver, explain the mechanism: how it lowers cost or raises reward for cross-border activity.
5Add measurement: openness ratio, FDI to GDP, capital flows, or composite indices, and state what each shows.
6Add a trend or example, such as global value chains or India's 1991 liberalisation, and state it cautiously.
7If asked to discuss or evaluate, note that drivers interact and that trends can slow or reverse.
8Close with a short conclusion that answers the question set.

Quickest way: Define, group, link, measure

When to use it: Use for multiple-choice questions and short written parts worth few marks.

Write the definition in one line.
List the three driver groups: technology, politics, economics.
Attach one mechanism to each group in a short phrase, such as 'lower transport cost' or 'lower tariffs'.
Add one measure, usually (exports + imports) ÷ GDP.
For MCQs, pick the option that fits the group asked and reject options that describe effects, such as job losses, instead of causes.

Common mistakes in Meaning and Drivers of Globalisation

Confusing causes of globalisation with its effects.
Both appear in the same chapter, and terms such as outsourcing can be either.
Fix: Ask whether the item makes cross-border activity easier (a driver) or is a result of it (an effect). Keep effects for the costs and benefits topic.
Listing drivers with no explanation.
Students memorise words such as 'technology' and 'trade liberalisation'.
Fix: For each driver, add one sentence on how it cuts cost or raises reward for cross-border business.
Defining globalisation as only trade in goods.
Trade is the most familiar example.
Fix: Include services, capital, labour, technology and information. Mention FDI and financial flows.
Treating globalisation as steady and one-way.
Textbook narratives stress growth.
Fix: Say trends have slowed or reversed at times, for example after crises or when protectionism rises.
Misusing the openness ratio.
Students divide by exports only, or compare countries of very different size without comment.
Fix: Use (exports + imports) ÷ GDP. Note that large economies usually show lower ratios than small ones.

Worked examples

Example 1

An economy has GDP of ₹2,00,000 crore, exports of ₹30,000 crore and imports of ₹40,000 crore. Calculate its trade openness ratio and comment briefly.

Show the solution

Use Openness = (Exports + Imports) ÷ GDP.
Exports + imports = 30,000 + 40,000 = ₹70,000 crore.
Divide by GDP: 70,000 ÷ 2,00,000 = 0.35.
Convert to a percentage: 0.35 × 100 = 35%.
Comment: trade equal to 35% of GDP shows meaningful integration. A single ratio does not capture capital flows or services, and a rising ratio over time is more informative than one year.

Answer: Trade openness = 35% of GDP.

Example 2

Explain the main technological, political and economic drivers of globalisation.

Show the solution

Define: globalisation is the growing integration of economies through flows of goods, services, capital, labour and ideas.
Technological: cheaper transport such as containers and air freight, and digital communication, lower the cost of moving goods and coordinating firms across countries.
Political: lower tariffs and quotas, WTO-led and regional trade agreements, and market-oriented reforms such as India's liberalisation from 1991 widen access to foreign markets.
Economic: wage and cost differences encourage firms to produce abroad. Larger markets give economies of scale. FDI and freer capital markets let firms and investors operate globally.
Link: the drivers reinforce each other. Lower tariffs make it worthwhile to use cheaper transport, and better communication allows firms to manage global supply chains.
Conclude: globalisation rises when the cost of cross-border activity falls or the reward rises, and these three groups explain most of that change.

Answer: Technology cuts the cost of distance, political reform removes barriers, and economic incentives reward cross-border production and sales. Together they drive integration.

Exam tips

Structure every causes question as technological, political, economic. Examiners look for this grouping.
Explain the mechanism in each driver; a bare list earns few marks.
In MCQs, check whether the question asks for a cause, a measure or an effect before picking an option.
Show the openness ratio formula and your working if a numerical part appears.
Mention that globalisation trends can slow or reverse to show balanced judgement in discuss questions.

Practice questions from Globalisation and multinational business

Meaning and Drivers of Globalisation: frequently asked questions

What is globalisation in simple terms?

It is the growing linkage of economies across the world through trade, investment, finance, people and ideas. Firms and consumers increasingly operate in a world market.

How do I remember the drivers of globalisation?

Use three groups: technological, political and economic. Add one mechanism to each, such as lower transport costs, lower tariffs and wage differences.

How is globalisation measured?

Common measures are the trade openness ratio, (exports + imports) ÷ GDP, and FDI or capital flows as a share of GDP. Composite indices combine economic, social and political links.

Is globalisation always increasing?

No. Over long periods trade has tended to grow, but there have been slowdowns and reversals, for example after financial crises or when protectionism increased. Describe trends as tendencies.