Reviewed by Aug 27, 2020| Updated on
Invisible trade refers to an international transaction which does not involve tangible goods, but services such as consultancy services, insurance, banking, intellectual property, international tourism, etc. In other words, it is the import and export of services between countries.
The percentage of invisible trade has been increasing in recent years, across the globe. A country’s invisible trade needs to be accounted for, while calculating the total balance of trade.
Invisible trade is one type of invisibles, which include payments made for services. However, invisibles could also include remittances, transfer payments, foreign aid and relief, made between individuals, businesses, government or non-governmental organisations (NGOs).
Balance of Payments and Balance of Invisible Trade
Balance of payments refers to all economic transactions made between persons in a country and the rest of the world. The balance of invisible trade is the balance of a country’s invisible exports and invisible imports only. In developing countries, the invisible receipts could exceed the payments made. This deficit could get offset by the interest payments made on foreign debt.
To maintain a balance of trade, a surplus of a country’s visibles balance can offset a deficit in its invisibles balance. For example, large payments being made to businesses in foreign countries for industries such as shipping or tourism. Likewise, a visibles balance deficit can be offset by a surplus invisibles balance. For example, if foreign aid is being received.
Examples of Invisible Trade
Medical tourism is one of the latest examples falling under this category. People travel abroad for specialised healthcare services, sometimes better quality than what is being offered in their own country. Some persons travel for medical tourism to developing nations, as they can get the same procedures done at hugely reduced costs.
Other examples of invisible trade include banking, consultancy, tourism, insurance, attending university abroad, etc.