Domestic Territory and Normal Resident of a Country | National Income

Read this article to learn about the domestic territory and normal resident of a country!

Domestic Territory of a Country:

By domestic territory, a layman means political frontiers of a country but in national accounting it is used in a wider sense.

Domestic territory, as used in national accounting, has a special meaning and is much bigger than the political frontiers of a country. According to United Nation, “Economic territory is the geographical territory administered by a government within which persons, goods and capital circulate freely.”

Clearly, freedom of circulation of persons, goods and capital is the basic criterion of economic territory for including in it. Thus, those parts of political frontiers of a country whose government does not enjoy these freedoms (e.g. embassies) are deemed to be outside the economic territory. (Remember that income generated within domestic territory during a year is called domestic income.) Mind, embassies are not included in domestic territory as they are not administered by the government of the country in which they are located. Again note that domestic territory is also called economic territory.

The following items are included in domestic territory:

What domestic (economic) territory includes:

(i) Territory lying within the political frontiers of a country. It includes territorial waters also.

(ii) Ships and aircrafts owned and operated by the residents between two or more countries. For Instance, Indian ships moving between UK and Pakistan regularly or passenger planes operated by Air India between Russia and Japan are parts of domestic territory of India.

(iii) Fishing vessels, oil and natural gas rigs and floating platforms operated by the residents of a country in the international waters or engaged in extraction in areas where the country has exclusive rights of operation. For example, fishing boats operated by Indian fishermen in the international waters of the Indian Ocean will be considered as a part of domestic territory of India.

(iv) Embassies, consulates and military establishments of the country located abroad. To illustrate, Indian embassies in Russia, America and other countries will form parts of domestic territory of India. Similarly, embassies of other countries like Japan, Russia, America located in India are parts of domestic territories of their own countries and not of India.

What domestic territory does not include:

(i) Territorial enclaves (like embassies) used/administered by foreign governments.

(ii) International organisations which are physically located within geographical boundaries of a country. Their offices form part of international territory.

Resident (Normal Resident) of a Country:

National income has also been defined as “Sum total of factor incomes earned by the normal residents of a country during a year.” Thus, like domestic territory, normal resident has a special meaning and importance in national accounting.

A resident is said to be a person (or institution) who ordinarily resides in a country and whose centre of economic interest lies in that country. He is called a normal resident since he normally lives in the country of his economic interest. The period of stay should be at least one year or more. Thus, (i) staying for more than a year and (ii) having economic interest [e.g. earning, spending, accumulation) are the two normal conditions for becoming a normal resident. It needs to be kept in mind that national income is the sum total of income of only normal residents of a country during a year.

Following points need to be noted:

(i) Normal residents cover both individuals and institutions.

(ii) Normal residents Include both citizens and non-citizens, i.e., foreigners who reside in a country for more than a year and have economic interest in that country.

(iii) International bodies like World Bank, World Health Organisation or International Monetary Fund are not considered residents of the country in which these organisations operate but are treated as residents of international territory. However, the staffs of these bodies are treated as normal residents of the country in which the international body operates. For example, international body like World Health Organisation located in India is not normal resident of India but Americans working in its office for more than a year will be treated as normal residents of India.

(iv) Local employees working in foreign embassies located in their country are treated as normal residents. For example, Indians working in US embassy located in India are residents of India.

(v) Workers from across the border who cross border in the morning to work in the other country (like Indians who work in Nepal) and return in the evening are not residents of the country where they work.

Normal residents of India include (i) Citizens (and institutions) of India, (ii) Citizens of other countries (i.e., non-citizens) who normally reside in India for more than a year and whose centre of economic interest lies in India, (iii) Citizens of India working in (a) international bodies like I.M.F., (b) foreign bodies like banks, enterprises operating in India and (c) foreign embassies located in India.