Net Factor Income from Abroad (NFIA)
NFIA formula, components, positive/negative/zero cases, and converting domestic income to national income.
Notes
What is NFIA?
NFIA refers to the difference between factor income received from the rest of the world and factor income paid to the rest of the world.
Net Factor Income from Abroad
$$\\text{NFIA} = \\text{Factor income earned from abroad} - \\text{Factor income paid abroad}$$
Factor income from abroad is income earned by normal residents from the Rest of the World (ROW) in the form of wages and salaries, rent, interest, dividend, and retained earnings.Factor income to abroad is factor income paid to non-residents for their factor services within the domestic territory.
Converting Domestic Income to National Income
Domestic Income
Based on domestic territory
NFIA
(+) Income from abroad
(-) Income to abroad
National Income
Based on normal residents
National Income = Domestic Income + NFIA
| Aspect | Case | Condition |
|---|---|---|
| Positive | Income from abroad > Income to abroad | Residents earn more abroad than non-residents earn here |
| Negative | Income from abroad < Income to abroad | Non-residents earn more here than residents earn abroad |
| Zero | Income from abroad = Income to abroad | Balanced flows |
NFIA is zero in a closed economy (no dealings with rest of the world).
Components of NFIA
Three main components of NFIA:
NFIA Components
$$\\text{NFIA} = \\text{Net COE} + \\text{Net Income from Property \& Entrepreneurship} + \\text{Net Retained Earnings}$$
Calculating NFIA — Solved Examples
Solved Example
Problem
Factor income from abroad = 500; Factor income to abroad = 300. Calculate NFIA.
Solution
NFIA = 500 - 300 = 200
Solved Example
Problem
Factor income from abroad = 250; Factor income to abroad = 620. Calculate NFIA.
Solution
NFIA = 250 - 620 = (-) 370
Solved Example
Problem
Factor income to abroad = 150 (Factor income from abroad not mentioned = 0). Calculate NFIA.
Solution
NFIA = 0 - 150 = (-) 150
Solved Example
Problem
Factor income to abroad = (-)150. Calculate NFIA.
Solution
NFIA = 150