What Is Invisible Trade?

An invisible trade is an international transaction that does not include an exchange of tangible goods. Customer service outsourcing, overseas banking transactions, and the medical tourism industry all are examples of invisible trade. In fact, any transaction that is associated with a value but not with physical goods could be called an invisible trade.

In modern times, any accounting of a nation's balance of trade must include a calculation of its invisible trade. This is often referred to as the invisible balance.

Key Takeaways

  • Invisible trade, or the exchange of non-tangible goods, represents an increasing percentage of the world's business.
  • Global financial services and insurance companies, shipping services, and tourism all engage in invisible trade.
  • Medical tourism is one of the modern businesses that has emerged in invisible trade.

Understanding Invisible Trade

Invisible trade in all its varieties represents an increasing percentage of world trade. In fact, most business services that cross international borders are examples of invisible trade.

The concept of invisible trade is used to define business activities that involve monetary exchange but not an exchange of physical goods. The purchase of an insurance policy by a firm in one country from a company in another country is such a transaction.

It also describes a bank's income from its overseas branch offices, income from foreign investments, shipping services, tourism revenues, and consultant fees from international contracts.

Examples of Invisible Trade

Education is a form of invisible trade. Students might travel to other nations to gain access to learning at institutions that are renowned for their expertise in particular academic fields. Once they graduate, they might stay on or go home. If they go home, they will transfer their knowledge and expertise across borders in another intangible exchange.

Patients in need of specialized medical procedures, higher quality healthcare, or lower-cost services now often travel to other countries to get them. Medical tourism has become a significant factor in invisible trade.

Invisible trade is primarily made up of services. A company that pays for customer call services located abroad is engaging in invisible trade.

Not all invisible trade represents a private business venture. Foreign aid is an example, as are international emergency relief efforts. Foreign loans and the payments of interest on those loans are counted as invisible trade. So are many individual transactions, such as an immigrant sending money to family members at home.

Borderline Cases

Clearly, some products and services fall somewhere between the visible and invisible trade definitions. The medical tourist who flies home after knee replacement surgery is bringing something home, after all. The customer of an international insurance company is getting a policy.

However, accountants need to count. A nation's trade balance is calculated by tracking imports and exports, payments and receipts. Much of the business of invisible trade falls outside the usual sources of this data.