From an economic standpoint, why do production factors move from one country to another? How does factor movement affect international trade?

What will be an ideal response?

Capital, especially short-term capital, is the most internationally mobile production factor. Companies and private individuals primarily transfer capital because of differences in expected return. Short-term capital is more mobile than long-term capital, especially direct investment, because there is more likely to be an active market through which investors can quickly buy foreign holdings and sell them if they want to transfer capital back home or to another country. Furthermore, investors feel more certain about short-term political and economic conditions in a foreign country than about long-term ones. People are also internationally mobile. Unlike funds that can be cheaply transferred by wire, people must usually incur high transportation costs to work in another country. Although international mobility of production factors may be a substitute for trade, the mobility may stimulate trade through sales of components, equipment, and complementary products. If trade could not occur and production factors could not move internationally, a country would have to either forego consuming certain goods or produce them differently, which in either case would usually result in decreased worldwide output and higher prices. In some cases, however, the inability to gain sufficient access to foreign production factors may stimulate efficient methods of substitution, such as the development of alternatives for traditional production methods.