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Trends in Net Factor Income

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This note explains the trends and components driving net factor income, and the influence which these statistics
have on national income figures.

Net factor income is comprised of both income inflows to, and outflows from, Ireland. Heavily influenced by
the activities of foreign-owned multinational corporations in Ireland, net factor income has been consistently
negative in the past. This position is due, in part, to the repatriation of profits by these multinational corporations
from Ireland. Table 1 (below), shows the net income flows in recent years.

Table 1: Net Factor come Flows (Ireland, 2009-2015)€ billion
Net flows -29.4-28.5-33.8-33.6-28.3-29.7-53.2
Percentage change10%-3%19%-1%-16%5%79%

The table shows a more negative net outflow in 2011, which became less negative again in 2013. In 2015, net factor income became significantly more negative, amounting to a €53.2 billion net outflow from Ireland.

Net factor income is derived from the current account of the Irish balance of payments, where it comprises all components of primary income, except ‘other primary income’. Primary income is the return which accrues to institutional units for their contribution to the production process or for the provision of financial assets. The components of primary income which contribute to net factor income are shown in Figure 1 (below), in the Quarterly Balance of Payments release and in Appendix 1 of this note.

Net Direct Investment incomeNet Portfolio Investment income Net other Investment income Net compensation of employeesNet factor Income

Figure 1 shows that the contributions of net compensation of employees and net other investment income are
relatively insignificant. Although net portfolio investment income flows have been consistently negative, they
have remained more stable than direct investment income flows. Direct investment income represents the
largest and most variable component of net factor income and has therefore, been the primary driver of changes
in net factor income.

The Composition of Total Factor Income Flows

Direct investment income is the return which direct investors receive on their investment in
  affiliates in another country. By definition, direct investors are able to exercise control over the
  enterprise in which they are investing, known as the direct investment enterprise.1
Portfolio investment income is the return on cross-border investments from investors who do
  not own a controlling stake in the entity in which they are investing.2
Other investment income is composed of earnings on financial derivatives, and interest arising
   from currency deposits and selected loans.
Compensation of employees is the wage and non-wage remuneration of non-residents working
  in Ireland and Irish employees working for non-resident entities.The share of employee compensation in Irish income flows is negligible.

The composition of inflows and outflows is shown in Figures 2 and 3 (below).

Direct Investment incomePortfolio Investment incomeOther Investment incomeCompensation of employees
Direct Investment incomePortfolio Investment incomeOther Investment incomeCompensation of employees

The graphs (above) show a pronounced increase in direct investment income outflows in 2015. Most of the
direct investment in Ireland is associated with companies outside the International Financial Services Centre
(IFSC),4 and consequently these are the type of companies which accrue this income from investments in
Ireland. The increased outflow coincided with a direct investment income inflow decline in 2015, leading to the
significant net direct investment income change shown in Figure 1.

Conversely, portfolio investment income outflows and inflows have both increased. Therefore, portfolio
investment income has had a much smaller net effect over the period. Similarly, decreases in other investment
income outflows were mirrored by declines in inflows.

Direct Investment Income

Foreign direct investment flows are recorded as either equity or debt investment. Consequently, the return on these investments occurs as either return on equity or as interest. We generally think of income accruing from equity as dividends, but reinvested earnings5 are also attributable to direct investors. Figures 4 and 5 (below) show that most direct investment income is not actually distributed.

Dividends and distributed branch profitsReinvested earningsIncome on debt
Dividends and distributed branch profitsReinvested earningsIncome on debt

Income on equity6 (dividends and distributed branch profits, and reinvested earnings) accounts for the majority of direct investment income outflows and inflows. Furthermore, the recent increase in direct investment income observed in Figure 3 is seen to be as a result of increased reinvested earning outflows.

Portfolio Investment Income

Portfolio investment has a larger proportion of debt in its composition than direct investment. This is reflected in the higher interest flows in Figures 6 and 7 (below) when compared to Figures 4 and 5 (above).

Income on debtIncome on equity
Income on debtIncome on equity

Irish portfolio investment flows are highly influenced by the prevalence of investment funds in Ireland. As a result of increasing debt asset positions, investment funds in Ireland have earned more interest in recent years (Figure 6), and pay out these higher profits as increased equity income outflows (Figure 7). Additionally, the recent declines in interest outflows have occurred as a result of the lower interest rate climate in Ireland, reducing the return on loans.

Net Factor Income in National Income Statistics

Net factor income and the growth rate of GNP are inherently related.7 Figure 8 (below) shows the divergence of the GNP and GDP growth rate when net factor income changes substantially.

Gross Domestic ProductGross National Product Net Factor Income

*Nominal net factor income from Table 1 deflated to real net factor income to facilitate comparison

GNP grew faster than GDP in the instances where net factor income became less negative. This was most pertinent in 2013 where lower profit outflows saw GNP grow by 5%.8     

However, the factors underpinning GDP growth have also caused net factor income growth. In 2015 the growth of GDP (26.3%) was caused by the on-shoring of capital assets to Ireland. These capital assets also incurred substantial depreciation in 2015, and as net factor income is calculated after of the provision for depreciation, the 2015 GNP growth rate was also substantial (18.7%).Figure 8 shows that the acceleration of GDP growth coincided with the acceleration of total factor income outflows. The main reason for this concurrence is that the on-shoring of activity is not only influencing the growth of GDP and GNP, but is also driving the increased direct investment income outflows described earlier.


1 Where the direct investor owns at least 10% of the voting power of the direct investment enterprise

2 Cross-border investment where the investor does not own more than 10% of the enterprise, and does not influence the management of the enterprise

3 Short-term employees working abroad for less than one year and earnings of local staff working in embassies/consulates

4 See Table 4 of the Quarterly International Investment Position and External Debt release.

5 Where a direct investor has control over the entity in which it is investing (FDI), the decision to not to withdraw earnings is deemed implicit reinvestment. Therefore, these earnings are recorded as an income outflow in the current account and rebalanced by an imputed investment inflow in the financial account

6 Also known as BOP entrepreneurial income, see Balance of Payments background notes

7 Gross National Product = Gross Domestic Product + Net Factor Income

8 See CBI Quarterly Bulletin, Jan 14 – Box A (Conefrey & O’Brien)

9 See Appendix II for an outline of the effect of the large provision for depreciation in 2015 NIE results


Enquiries to:

Christopher Sibley, Balance of Payments,, 01 498 4305

Kieran Byrne, Balance of Payments,, 01 498 4150

Central Statistics Office

Ardee Road Rathmines

Dublin 6


Appendix I:Table 2a Excerpt: Primary Income in the Current Account
Balance of Payments Release: Table 2a€ million
Primary IncomeInflows57,64056,09062,70561,665
Compensation of EmployeesInflows541544546542
Investment IncomeInflows55,46654,09460,84059,553
   Direct Investment IncomeInflows17,79118,76619,84915,771
     Direct Investment Income: Income on equityInflows14,09215,54216,64712,140
       Dividends & distributed branch profits     
      Reinvested earningsInflows10,91511,58314,1991,863
    Direct investment income: Income on debtInflows3,6973,2263,2033,631
   Portfolio Investment IncomeInflows24,93525,62032,91236,157
             Portfolio Investment income: Income on equityInflows6,3646,9708,99810,324
             Portfolio Investment income: Income on debtInflows18,57018,64923,91425,833
   Other Investment IncomeInflows12,7429,7078,0807,624
Other primary IncomeInflows1,6321,4511,3181,571
Net Factor Income     
Source: Central Statistics Office Statbank
Note: Net Factor Income= Σ(Net Direct Investment Income, Net Portfolio Investment Income, Net Other Investment Income, Net Compensation of Employees)


Appendix II: Depreciation of capital assets in the 2015 National Income and Expenditure accounts

Gross Domestic Product (GDP) and Gross National Product (GNP) measure Irish economic activity including depreciation (before any deduction for depreciation). Similar to GDP and GNP, Net Domestic Product (NDP) and Net National Product (NNP) are whole-of-economy measures, but they measure economic activity after taking account of depreciation, and so provide estimates of activity in Irish economy with many of the recent effects of globalisation in the results removed. In particular, NNP measures economic activity with the effects of depreciation and the net effect of profits of multi-national entities removed and is a useful indicator of underlying economic activity in Ireland.               

GDP, GNP and NNP Changes 2016 (Current Prices)€ Million
YearGDPOf which depreciationNet Factor FlowsGNPNNP
Change32.4%  24.0%6.4%
Note: The percentage change figures presented in the table above are calculated using current price figures, and will differ from
those presented in the note, as those were calculated using constant price figures.
  • Christopher Sibley   (+353) 1 498 4305

  • Kieran Byrne   (+353) 1 498 4150

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