There was a question in my book in which the factor income paid to abroad was given as negative .

I guess here negative means that we are not paying but receiving from them but how can it happen that we are receiving income from normal residents of other countries ?

Is it true that factor income paid to abroad can be negative or is it only in theory ?


1 Answer 1


I suspect that you are looking at an economic description which contrasts factor incomes with current transfers. That is slightly old fashioned, and the contemporary terms are primary income and secondary income in the balance of payments accounts (a similar change in the national accounts involved going from what was called GNP to GNI - gross national income)

For example, for the United Kingdom, you can find data in the UK Balance of Payments Pink Book, for primary income in Chapter 4 and secondary income in Chapter 5

Primary income includes:

  • compensation of employees (e.g. pay of cross-border workers and short-term migrants)
  • earnings on direct investment (e.g. profits of foreign subsidiaries - in theory this can be negative if they are loss-making)
  • earnings on portfolio investment (e.g. share dividends and bond coupons)
  • earnings on other investment (e.g. interest paid on bank loans and deposits)
  • taxes and subsidies on products and production (only recently reclassified to primary income and possibly not in your factor income)

By contrast, secondary income (so presumably not in your factor income) includes:

  • remittances by long-term migrants and current transfers by others
  • insurance premiums and claims
  • cross-border taxes on income and wealth etc. and social security contributions and benefits
  • overseas aid
  • other intergovernmental current transfers and international organisations

Exports and imports of goods and services are treated separately: in the UK Pink Book, goods are in chapter 2 and services in chapter 3

In each case there are credits (income from abroad) and debits (income due abroad), leading to a net figure which can be positive or negative. Add all of these up and you get the current account balance

  • $\begingroup$ You are saying about the net current account balance but I am talking about the factor income paid and how can something that is paid be negative ? $\endgroup$
    – Jonathann
    Nov 18, 2018 at 12:20
  • $\begingroup$ @Jonathann The point is that factor income, or primary income, involves flows into and out of the country (credits and debits), so the net flow can be positive or negative. There is also the rare possibility of negative gross earnings on direct investment, which could require funding though the financial account, or negative interest on other investment $\endgroup$
    – Henry
    Nov 18, 2018 at 17:35

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