Non-factor services
Also called: Services trade · Topic: Balance of Payments and Exchange Rates · NCERT: Class 12, Ch 6 "Open Economy Macroeconomics"
Meaning
Non-factor services are services traded between countries that are not payments to factors of production. Examples include shipping, banking, insurance, tourism and software. They are recorded under invisibles in the current account ("invisible" because nothing physical crosses the border). Services sold abroad are credits, and services bought from abroad are debits.
Example
India has a net services surplus, mainly from software, business services and global capability centres. This surplus helps offset its large merchandise trade deficit. In NCERT's Table 6.1, net non-factor services are +30 (US$ million).
Don't confuse with
- Factor income (primary income): interest, dividends, profits and wages are payments for labour, land or capital. Non-factor services are sold as services in their own right.
- Transfers: remittances and gifts have no service given in return.
Related concepts
- Balance of payments
- Current account (balance of payments)
- Balance of trade
- Trade deficit
- Invisibles
- Income account (balance of payments)
- Remittances
- Current account deficit