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BALANCE OF INVISIBLE TRADE

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Abhijeet S
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BALANCE OF INVISIBLE TRADE - September 13th, 2010

BALANCE OF INVISIBLE TRADE


Just as a country exports goods and imports goods a country also exports and imports what are called as services (invisibles). The service account records all the service exported and imported by a country in a year. Unlike goods which are tangible or visible services are intangible. Accordingly services transactions are regarded as invisible items in the BOP.


They are invisible in the sense that service receipts and payments are not recorded at the port of entry or exit as in the case with the merchandise imports and exports receipts.


Except for this there is no meaningful difference between goods and services receipts and payments. Both constitute earning and spending of foreign exchange. Goods and services accounts together constitute the largest and economically the most significant components in the BOP of any country.



The service transactions take various forms. They basically include

1) transportation, banking, and insurance receipts and payments from and to the foreign countries,

2) tourism, travel services and tourist purchases of goods and services received from foreign visitors to home country and paid out in foreign countries by home country citizens,

3) expenses of students studying abroad and receipts from foreign students studying in the home country,


4) expenses of diplomatic and military personnel stationed overseas as well as the receipts from similar personnel who are stationed in the home country and


5) interest, profits, dividends and royalties received from foreign countries and paid out to foreign countries. These items are generally termed as investment income or receipts and payments arising out of what are called as capital services.

“Balance of Invisible Trade” is a sum of all invisible service receipts and payments in which the sum could be positive or negative or zero.


A positive sum is regarded as favourable to a country and a negative sum is considered as unfavourable. The terms are descriptive as well as prescriptive.
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