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Susanna Yuen Shan, Keung EC1112 Spring Term Essay Are trade and capital mobility substitutes or complements? As many people can notice, globalization is becoming a trend when more and more countries are trading their products with each other. In some cases, countries are willing to integrate their capital markets, that is improving capital mobility, so as to achieve freer trade. However, some might argue that trade and capital mobility are complements, which are casually related. To justify one of the two statements above, it is useful to first look at what 'capital mobility' means. There are physical capital and financial capital. Improving their mobility is to allow things like machines and foreign direct investment (FDI) to move freely in and out of countries. The main objectives of FDI for foreign firms are to exploit competitive advantages, such as technology; to benefit from economies of scale; to gain access to cheaper labour or natural resources...

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