Factor of production mobility refers to the ability to move factors of production—labor, capital, or land—out of one production process into another. Factor mobility may involve the movement of factors between firms within an industry, as when one steel plant closes but sells its production equipment to another steel firm. Mobility may involve the movement of factors across industries within a country, as when a worker leaves employment at a textile firm and begins work at an automobile factory. Finally, mobility may involve the movement of factors between countries either within industries or across industries, as when a farm worker migrates to another country or when a factory is moved abroad.

The standard assumptions in the trade literature are that factors of production are freely (i.e., without obstruction) and costlessly mobile between firms within an industry and between industries within a country but are immobile between countries.

The rationale for the first assumption—that factors are freely mobile within an industry—is perhaps closest to reality. The skills acquired by workers and the productivity of capital are likely to be very similar across firms producing identical or closely substitutable products. Although there would likely be some transition costs incurred, such as search, transportation, and transaction costs, it remains reasonable to assume for simplicity that the transfer is costless. As a result, this assumption is rarely relaxed.

The assumption that factors are easily movable across industries within a country is somewhat unrealistic, especially in the short run. Indeed, this assumption has been a standard source of criticism for traditional trade models. In the Ricardian and Heckscher-Ohlin models, factors are assumed to be homogeneous and freely and costlessly mobile between industries. When changes occur in the economy requiring the