Net Foreign Factor Income (NFFI)
Candlefocus EditorNFFI measures borrowing and lending activities between countries. These activities rely on capital flows and make up a large part of international investment. Essentially, NFFI indicates the difference between the money a nation receives through services, industrial production, and other foreign investments compared to the money it spends to foreign entities.
NFFI generally does not have a major impact on an economy in the short term. In other words, payments earned by citizens and those paid to foreigners are typically offsetting. However, in the long-term it is important because these flows of income can create imbalances in overall economic production.
The sheer amount of international movement of money, people, and goods has significantly increased in recent years, especially due to technological advancements. This is creating major changes in global economic dynamics. With this increased global interconnectedness comes an increased reliance on NFFI for economic health.
NFFI also provides insights about an economy’s exposure to foreign markets. An economy with a large NFFI benefits from movements in global markets, primarily though investments in stocks and bonds, as well as real estate purchases. On the other hand, an economy with low NFFI may be more susceptible to losing out on potential financial gains from foreign markets.
Overall, net foreign factor income is an important economic measurement as global markets become increasingly interconnected. Inflows and outflows of services, industrial production, and other foreign investments determine an economy's level of international investments and its potential to benefit from global markets. As a result, NFFI plays an essential role in the success of an economy.