Net Foreign Factor Income (NFFI)

What is the 'Net Foreign Factor Income (NFFI)'

The net foreign factor income (NFFI) is the difference between a nation’s gross national product (GNP) and gross domestic product (GDP). Net foreign factor income (NFFI) is the difference between the aggregate amount that a country’s citizens and companies earn abroad, and the aggregate amount that foreign citizens and overseas companies earn in that country. In mathematical terms, NFFI = GNP - GDP.

The NFFI level is generally not substantial in most nations, since factor payments earned by their citizens and those paid to foreigners more or less offset each other. However, the NFFI's impact may be significant in smaller nations with substantial foreign investment in relation to their economy and few assets overseas, since their GDP will be quite high compared to GNP.

BREAKING DOWN 'Net Foreign Factor Income (NFFI)'

Note that GDP refers to all economic output that occurs domestically or within a nation’s boundaries, regardless of whether production is owned by a local company or foreign entity. GNP, on the other hand, measures output from the citizens and companies of a particular nation, regardless of whether they are located within its boundaries or overseas. For example, if a Japanese company has a production facility in the U.S., its output will count toward U.S. GDP, but Japan’s GNP.

While GDP is the most widely accepted measure of economic output, having supplanted GNP around 1990, it is criticized by some economists for providing a somewhat misleading picture of an economy's true health and the well-being of its citizens. This is because GDP does not take into account the profits earned in a nation by overseas companies that are remitted back to foreign investors. If these remitted profits are very large compared with earnings from the nation’s overseas citizens and assets, the NFFI figure will be negative, and GNP will be significantly below GDP.

NFFI may assume increasing importance in a globalized economy, as people and companies move across international borders more easily than they did in the past.

RELATED TERMS
  1. Gross National Product - GNP

    Gross national product (GNP) is an economic statistic that includes ...
  2. Gross National Product (GNP) Deflator

    An economic metric that accounts for the effects of inflation ...
  3. Net National Product - NNP

    The monetary value of finished goods and services produced by ...
  4. Gross Domestic Product - GDP

    The monetary value of all the finished goods and services produced ...
  5. National Income Accounting

    A term used in economics to refer to the bookkeeping system that ...
  6. Okun's Law

    The relationship between an economy's unemployment rate and its ...
Related Articles
  1. Economics

    What's the GNP?

    Gross national product (GNP) is one of many metrics economists use to measure a country’s economic output. For any one year, GNP equals the market value of all the goods and services produced ...
  2. Term

    The Functional Difference Between GDP and GNP

    Both gross domestic product and gross national product try to measure the market value of all goods and services an economy produces.
  3. Professionals

    Introduction

    CFA Level 1 - Section 4: Introduction to Macroeconomics
  4. Fundamental Analysis

    Deadly Flaws In Major Market Indicators

    These indicators give investors and experts some data to work with, but they're far from perfect measures.
  5. Economics

    How To Calculate The GDP Of A Country

    We explain how to calculate the GDP of a country using two different approaches.
  6. Professionals

    Limitations of GDP and Alternative Measures

    CFA Level 1 - Limitations of GDP and Alternative Measures
  7. Economics

    Macroeconomics: Economic Performance and Growth

    By Stephen Simpson Income is one of the most significant factors in measuring economic performance, and gross domestic product (GDP) is the most commonly used measure of a country's economic ...
  8. Retirement

    Economic Indicators: Gross Domestic Product (GDP)

    By Ryan Barnes Release Date: Advance release: four weeks after quarter ends;Final release: three months after quarter ends Release Time: 8:30am ...
  9. Professionals

    Gross Domestic Product

    A country’s Gross Domestic Product or GDP measures the overall health of a nation’s economy. The Gross Domestic Product is defined as the value of all goods and services produced ...
  10. Economics

    How The GDP Of The US Is Calculated

    The US GDP may not be a perfect economic measure, but the ability to compare it to prior periods and other countries makes it the most applicable.
RELATED FAQS
  1. What is the formula for calculating gross national product (GDP)?

    Find out how to calculate a country's gross national product (GNP), which is a method of accounting for the total income ... Read Answer >>
  2. What is the functional difference between GDP and GNP?

    Find out the difference between GDP and GNP, and how each brings a different perspective to the meaning of economic success. Read Answer >>
  3. What insights are economists trying to capture with GNP?

    Learn how, despite its disfavor as a primary economic indicator, GNP provides special insight into the value of production ... Read Answer >>
  4. When do economists use GNP?

    Learn about the ways economists use GNP. Find out how the Bureau of Economic Analysis monitors U.S. economic performance ... Read Answer >>
  5. Is GNP a valuable metric in a globalized economy?

    Learn about the value of GNP in a globalized economy and find out what information GNP can provide to policymakers and business ... Read Answer >>
  6. What does GNP say about the balance of trade?

    Learn about the interaction of GNP and the balance of trade. Find out how GNP is structured and the role that the balance ... Read Answer >>
Hot Definitions
  1. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  2. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  3. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  4. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  5. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  6. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
Trading Center