What Is an Invisible Trade?

An invisible trade is a transaction where no physical assets change hands. Services are a common example. When a passenger buys an airline ticket, the airline receives money and provides a service in the form of a flight to the passenger’s destination, but the customer doesn’t receive a tangible good. Worldwide, such financial activities make up a significant portion of global trade, and calculating them correctly is important for financial reporting, statistics, and evaluations of economic health.

In addition to services, transfers of money between nations, intellectual property like patents, and income for investments are examples of invisible trade. All of these transactions involve transfers of value in exchange for due consideration, but that consideration isn’t physical in nature. An inventor who licenses a patent, for example, isn’t giving the buyer the actual patented object, but the license to produce it with approval. Likewise, an investor who earns money from the sale of stocks hasn’t given buyers something of physical value.

Services like banking, tourism, and consulting are a significant percentage of global invisible trade. They are used worldwide on a variety of scales, from the shipment of large amounts of bulk cargo to personal savings accounts for people who want a place to keep their money. Transfers of funds can also be significant as governments and large investors move money between nations for investments and other purposes. For instance, a government might need to repay loans, which could require a transfer to a lender in a different country, paying for the service offered when the government needed funds to pay for an activity.

Tracking activity in this sector of the economy can provide insight into economic health. Changes in the volume of invisible trade transactions occurring can offer information about economic stability and well-being. Countries could end up with a trade deficit, for instance, indicating that they are relying on services from outside their borders to meet their needs. In surpluses, money is being brought in through financial activities in other countries.

Studies of economic behavior and how people interact with the economy can also consider the invisible trade as an example of one kind of transaction people may engage in. Understanding how people value intangible objects can be important for economists, who need to be able to fairly and accurately describe such assets. This in turn can play a role in policy; governments, for example, need to consider the value of intellectual property when they develop policies for licensing and protecting such assets.