Net Foreign Factor Income (NFFI)

AAA

DEFINITION of 'Net Foreign Factor Income (NFFI)'

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.

INVESTOPEDIA EXPLAINS '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. Global Investment Performance Standards ...

    Ethical standards to be used by investment managers for creating ...
  2. Global Bond

    This type of bond can be traded in a domestic or European market. ...
  3. Global Fund

    A type of mutual fund, closed-end fund or exchange-traded fund ...
  4. Global Macro Strategy

    A hedge fund strategy that bases its holdings - such as long ...
  5. Gross National Product - GNP

    An economic statistic that includes GDP, plus any income earned ...
  6. Real Gross Domestic Product (GDP)

    An inflation-adjusted measure that reflects the value of all ...
Related Articles
  1. Investment Misselling A Global Problem
    Personal Finance

    Investment Misselling A Global Problem

  2. 5 Investment Risks Created By Global ...
    Home & Auto

    5 Investment Risks Created By Global ...

  3. Does High GDP Mean Economic Prosperity?
    Economics

    Does High GDP Mean Economic Prosperity?

  4. A Guide To Global Investment Performance ...
    Fundamental Analysis

    A Guide To Global Investment Performance ...

comments powered by Disqus
Hot Definitions
  1. Walras' Law

    An economics law that suggests that the existence of excess supply in one market must be matched by excess demand in another ...
  2. Market Segmentation

    A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will ...
  3. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following: ...
  4. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  5. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious ...
  6. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
Trading Center