Is export/imports a part of factor income i.e returns from the act of production? If not, then here is my counter argument.

Export is the equivalent value which is added to the goods when it is undergoing production, and it is this value which is distributed to all the factor services. Could y’all please clear this anomaly.



1 Answer 1


Is export/imports a part of factor income i.e returns from the act of production?

Yes, they are.

Or better, exports are part of national income, while imports must be subtracted.

If we consider an open economy, that is an economy that includes the foreign sector, exports and imports are recorded in the so-called current accounts of the balance of payments.

Current accounts record the receipts of sales of currently produced goods and services to foreign sector, that appear as exports, in the national income accounts. The current accounts also record payments for the import of goods and services from abroad: these appears as imports.

The net exports term $X-M$ ($X$ are exports and $M$ imports) enters the (ex post) income accounting identity:

$$Y= C+I+G+(X-M),$$

where $Y$ is national income, $C$ is consumption, $I$ is investment and $G$ is government expenditure in goods and services.

The reason why $X$ enters the identity with the sign 'plus' is that exports are a component of aggregate expenditure (that is the expenditure on final goods and services produced by national producers) coming from foreigners, while a part of aggregate expenditure by domestic residents $M$ falls on foreign goods and services.

Therefore, one has to subtract from the total expenditure by domestic residents on final goods and services that portion which is spent on imported goods and services $M$ and add to the result foreign expenditure on domestically produced goods and services $X$.


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