In economic theory the four factors of production are labour, land, capital and enterprise. Each of these factors gets a return for their input into production and this is called Factor Income. The workers receive their wages (Compensation of Employees), the landlord receives Rent on land, the owner of capital (shareholder or lender) receives dividends or interest (Investment Income) and the remainder goes to the enterprise.
The income on the first three factors of production (Compensation of Employees, Rent and Investment Income) flow into and out of a country. The net is the total inflows less the total outflows. This exchange with the rest of the world is the Net Factor Income for the total economy.
In Ireland in the twenty-first century the largest part of Net Factor Income are the inflows and outflows on capital. The outflows from Ireland are mostly net profits that are made by Foreign-Owned Corporations in Ireland which are paid to their owners abroad. Even if these companies do not pay a dividend, the National Accounts treat it as if it is paid abroad (see Reinvested Earnings). If foreign institutions have lent money to the Irish Government, the interest on that national debt is also part of the outflow which leaves the country. There are also successful Irish companies with subsidiaries abroad, and these companies receive inflows into Ireland. The many large investment funds among Ireland’s Financial Corporations have large inflows, but equally large outflows, and these greatly inflate the factor flows while having little net effect. After these inflows and outflows have been counted, the total income remaining with Irish households, corporations and government is the Gross National Product (GNP).
In most countries, the amounts flowing in and flowing out are more or less equal, so GNP and GDP are quite close in value. In Ireland's case, for many years past, the amount belonging to persons abroad has been much greater than the amount received from abroad, due mainly to the profits of foreign-owned companies. This makes our Net Factor Income negative, and our GNP is, therefore, less than our GDP.
All Factor Income is also Primary Income. For National Accounts, we also include in Primary Income the Government’s direct input into production (Subsidies paid) and its income from the production process (Taxes on Products and Production received). Hence Primary Income equals:
Most Household Primary Income comes from Compensation of Employees, most Government Primary Income comes from Taxes on Products (VAT), most Corporation Primary Income is negative as Gross Operating Surplus is distributed to the other factors of production.
For the country as a whole, after Net Factor Income and the Subsidies received from the rest of the world have been added, and the Taxes paid have been deducted from Gross National Product, the remainder is Gross National Income. Hence:
National Accounts also shows Secondary Income, where the income flows next.
