Net National Product

Article byRutan Bhattacharyya
Reviewed byDheeraj Vaidya, CFA, FRM

What Is Net National Product (NNP)?

Net national product is the overall market value of the finished products and services produced by a nation’s citizens living domestically and overseas during a particular period (usually a year), minus depreciation. Economists often examine this metric to determine whether a nation can meet its minimum production standards.

Net National Product

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It is a useful comparative measurement that can indicate a country’s overall economic state. This is because it considers products and services produced by all citizens irrespective of where they earn income. That said, one must measure it in the currency of the country it represents. For instance, individuals calculate the net national product of the U.S. in dollars (USD).

Key Takeaways

  • Net national product meaning refers to the difference between a country’s gross national product and the depreciation or consumption of fixed capital. One can use it to determine a nation’s actual growth.
  • One must express NNP based on the nation it represents. For example, individuals must express the NNP of the U.S. and India in USD and rupees, respectively.
  • A noteworthy difference between NNP and NDP is that the former considers net factor income earned overseas.
  • When a country’s NNP drops, businesses consider transitioning to recession-proof industries. Whereas, when NNP rises, businesses usually shift their focus to consumer-led industries.

Net National Product Explained

Net National Product meaning refers to the overall monetary value of the total products and services produced by a country’s citizens residing domestically and internationally in a given period with depreciation deducted from it.

Generally, economists utilize this tool to report on a nation’s growth and strength. Moreover, individuals can use it to assess a country’s growth against other countries. Unfortunately, in recent times, it has been falling out of use. However, this tool can still offer crucial insights into market health and economic growth.

When a nation’s NNP falls, businesses consider shifting to recession-proof industries. In contrast, if NNP rises, businesses consider shifting their focus to consumer-led industries, for example, travel and sales, to increase revenue.

A vibrant nation, represented partially by its NNP, can help individuals determine whether moving into a particular nation is worth it. Alternatively, this key metric helps assess if a country’s economy is expanding at a rate that makes its citizens feel comfortable receiving income in the local currency.

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Formula

Individuals can utilize the following formula to calculate the net national product:

NNP = Gross National Product – Depreciation

Where:

  • Gross national product or GNP includes the total market value of finished products and services produced by a country’s economy in a given period (usually one year).
  • Depreciation refers to the wear and tear of capital assets and the depreciation of human capital in the case of workforce turnover. In other words, it is the total gross national product required to buy new goods to maintain the existing stock.

Example

Let us look at this national product example to understand the concept better.

Suppose country X’s citizens produced goods and services worth $3 trillion and $6 trillion, respectively, in 2019. The assets utilized to produce these goods and services depreciated by $300 billion.

Individuals can compute the above formula to compute country X’s NNP.  

NNP = $3 trillion + $6 trillion – $0.3 trillion, i.e., $8.7 trillion

$8.7 trillion accurately depicts X’s success more accurately than $9 trillion. An organization’s value is rooted in its net profit calculated by deducting all the expenses incurred to run its operations.  

Net National Product And Net Domestic Product

Let us look at some crucial differences between net national product (NDP) and net domestic product (NDP).

  • Meaning: Net national product in economics is the total financial value of products and services produced by the citizens of a country within the domestic territory and abroad. On the other hand, NDP is the overall monetary value of the finished products and services produced within a country’s geographic borders minus the consumption of fixed capital (CFC) or depreciation.
  • Overseas Net Factor Income: NNP includes net factor income from other countries. In contrast, NDP excludes it.

Difference Between Gross National Product And Net National Product

The terms gross national product and net national product can be confusing for individuals unfamiliar with them. To understand these economic concepts, individuals must learn how they differ from each other. So, the table below highlights the distinct characteristics of GNP and NNP.

Gross National ProductNet National Product
GNP refers to the value of all finished products and services produced by a nation’s citizens, usually during a year, domestically and abroad.It is GNP minus depreciation or the consumption of capital (CFC) utilized in the production process.
Gross national product is a crucial economic indicator for economists who utilize it to identify solutions to economic problems, for example, inflation and poverty.One can use this vital economic indicator to assess a nation’s growth against others. Moreover, it can help economists determine whether sustaining specific activities within a certain environment is possible.  

Frequently Asked Questions (FAQs)

1. What is net national product at factor cost?

It is the net monetary value of all finished products and services produced by the ordinary citizens of a nation. It includes citizens’ earnings regardless of whether they live within the country’s geographical boundaries or abroad. It is the net of national income, implying the exclusion of depreciation.

2. How to calculate the net national product at factor cost?

Individuals can compute the net national product at factor cost by using the following formula:
NNP At Factor Cost = National Domestic Product At Factor Cost + Overseas Net Factor Income

3. Is GDP and NNP same?

No, gross domestic product or GDP and NNP are not the same. GDP is the total monetary value of every product and service produced within a nation’s geographical borders. Unlike NNP, it does not consider the production of the country’s overseas citizens.

4. Is GNP greater than NNP?

Yes, gross national product or GNP is always higher than NNP as the former includes depreciation or the consumption of fixed capital.

This has been a guide to what Is Net National Product. Here, we explain its formula, example, and differences with the net domestic product and GNP. You can learn more about it from the following articles –

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