Net Foreign Factor Income (NFFI)
What Is Net Foreign Factor Income (NFFI)?
Net foreign factor income (NFFI) is the difference between a nation's gross national product (GNP) and its gross domestic product (GDP).
Figuring out Net Foreign Factor Income (NFFI)
NFFI is the difference between the aggregate amount that a country's residents and companies earn abroad and the aggregate amount that foreign residents and overseas companies earn in that country. In mathematical terms:
The NFFI level is generally not substantial in that frame of mind since payments earned by residents and those paid to foreigners pretty much offset one another. In any case, NFFI's impact might be huge in more modest nations with substantial foreign investment according to their economy and not many assets overseas, since their GDP will be very high compared to GNP.
GDP alludes to all economic output that happens domestically or inside a nation's limits, whether or not a neighborhood company or foreign entity possesses production. GNP, then again, measures the output from the residents and companies of a specific nation, whether or not they are situated inside its limits or overseas. For instance, on the off chance that a Japanese company has a production facility in the U.S., its output will count toward U.S. GDP and Japan's GNP.
GDP is the most widely accepted measure of economic output, having displaced GNP around 1990. In doing the switch, the Bureau of Economic Analysis (BEA) said GDP gave a more direct comparison of different measures of economic activity in the United States and that it would be useful to have a standard measure of economic output — most different countries at the time had proactively adopted GDP as their primary measure of production.
Special Considerations
Numerous [economists](/financial specialist) have questioned how significant GNP or GDP is as a measure of a nation's economic prosperity since they don't count most unpaid work while counting economic activity that is unproductive or destructive.
A few financial experts actually censure GDP, explicitly for giving a fairly deceptive image of an economy's true wellbeing and the prosperity of its residents. This is on the grounds that GDP doesn't consider the profits earned in that frame of mind by overseas companies that are dispatched back to foreign investors. Assuming these dispatched profits are exceptionally large compared with earnings from the nation's overseas residents and assets, the NFFI figure will be negative, and GNP will be essentially below GDP.
NFFI might expect expanding significance in a globalized economy, as individuals and companies get across international boundaries more effectively than they did in the past.
Highlights
- NFFI might expect expanding significance in a globalized economy, as individuals and companies get across international boundaries more effectively than they did in the past.
- Net foreign factor income (NFFI) is the difference between a nation's gross national product (GNP) and gross domestic product (GDP).
- NFFI is generally not substantial in that frame of mind since payments earned by residents and those paid to foreigners pretty much offset one another.
