International factor mobility may be either a complement to, or a substitute for, international trade in goods and services. If the basis for the international exchange of final commodities resides in differences in factor endowments as in Heckscher-Ohlinian trade theory, allowing these factors to move directly between countries obviates the need for commodity trade. However, if the basis for trade lies in other reasons (technological differences, as in Ricardian trade theory, increasing returns to scale, etc.) trade by itself will tend to raise the return to factors used intensively in each nation's export sector. Factor mobility that responds to such differences adds a factor endowment basis for expanded commodity trade.  Sometimes the international mobility of factors is a prerequisite for the development of commodity trade, particularly where extractive industries are concerned. On the other hand, deliberate protectionist policies may reduce trade significantly if they encourage the flow of capital to avoid the tariff barriers.

Thus, foreign investment may serve to expand production of a nation's exportables, or serve to encourage production of importables.  International factor mobility responds to perceived differences in factor returns among countries, and leads to the convergence of factor prices. International factor mobility also increases world income, but there may be important distributional consequences. In general, there are more important barriers to international factor mobility, perhaps with the exception of capital mobility, than there are to the movement of goods and services in international trade. There is limited mobility of labour between countries, and virtually no mobility of land-based natural resources.  International capital mobility reflects borrowing and lending transactions between countries, and gives rise to inter-temporal exchanges. Real interest rates are the key price variable which influences these transactions. Countries with a relatively low rate of interest will export capital by lending to foreign countries. Countries with a relatively high rate of interest will import capital by borrowing. Multinational enterprises choose to locate their operations in more than one country, and by so doing are involved in the transfer of their core competencies and/or proprietary technologies for use in other countries.

They are, therefore, an important vehicle for international technology transfers.  Technological convergence may be said to occur whenever the underlying technology of a "less advanced economy" becomes more similar to that of a "more advanced economy" through a process of technological diffusion. When the production function in any given productive sector is defined in terms of the average degree of application of technological knowledge to production processes within the sector, this production function will generally be observed to differ from one economy to another. But these differences in sectoral production functions (or technological leads and lags) among advanced economies do not remain unchanged through time. Indeed, the effects generated by intertemporal changes in these sectoral differences are, in combination, largely responsible for the observed differences in overall rates of economic growth and for the observed changes in broad trading patterns.