Abstract: The essence of international direct investment is the international flow of factor of production. Its extensive development makes the world economy into the globalized economy. The law of factor flow determines the micro mechanism and macro presentation of the globalized economy. The author elucidates that the division of value chain is an international cooperation of superior factors in various countries. The transnational corporations combine global factors, and determine global production distribution. Under the policy intervention, factor flow becomes a distorted market. The principle of factor revenue determines revenue distribution in international trade relationship. The factor flow in international economic increase promotes the forming of new mechanism and new structure. Factor flow changes the world’s industrial allocation, resulting in commercial imbalance. The way of development brings about new modes under factor flow. The theory of factor flow is the basic theory in analyzing contemporary world economy.