Are Trade and Capital Mobility Substitutes or Compliments?

In order to successfully devise an answer to the above question we need to understand that there are not one, but a number of various factors that need to be considered in order to come to any form of conclusion. We need to take into account the objectives of trade and the form of trade flows. Most importantly we also need to consider the impact of capital market integration on FDI flows, and the impact of product and capital markets integration on the prices of capital and traded products.
The term trade refers to the process of buying and selling goods and services. When goods or services are exchanged by people in different countries, international trade takes place. Trade and capital mobility is the movement of traded products or services and capital funds across borders and between countries.
Trade patterns can be identified through the use of the Grubel- Lloyd Index. …