The net national product is the total market value of all final goods and services produced by factors of production of a nation (minus depreciation) over a period of time. It is related to the gross national product.
Net national product is a macroeconomic term related to methods for measuring and representing national income. The term refers to a figure obtained by applying a standard formula to the value of gross national product.
The objective of calculating the net national product is to obtain a figure for national income, which takes into account the depreciation of investments that occur during the period for which the gross national product is calculated.
Although the net national product is a key identity in a country's accounting, its use in economic research is generally superseded by that of the gross domestic product or gross national product as a measure of national income, a preference that has historically been a contentious issue.
However, the net national product has been investigated for its role as a dynamic indicator of well-being.
Definition and formula
Macroeconomics includes four main parameters to measure the economy of a country:
- Gross Domestic Product - GDP.
- Net Internal Product - PIN.
- Gross National Product - GNP.
- National Net Product - PNN.
These measures represent the economic performance of a country and allow it to be objectively compared with that of other countries.
"Internal" means that it includes everything that is produced within the country, nationally, regardless of who produced it, whether they are foreigners or residents.
"National" means that it includes everything produced by the residents (or their capital) of a country, regardless of whether the production takes place within the country (at the national level) or outside the country (at the international level).
"Net" means that the gross product (both domestic and national) is subtracted by depreciation in capital used for production.
Gross domestic product is the monetary value of all goods and services produced within a country.
The gross national product is almost identical to the gross domestic product, except that it also includes the income earned by citizens residing in a nation from their investments abroad.
The net domestic product is the result of the gross domestic product less the depreciation of the assets that were used to carry out that production.
When the net domestic product also includes the factor of net income abroad, it is then called net national product.
Therefore, the net national product is the market value of all the goods and services of a nation, also called the gross national product less depreciation, during a period of usually one year.
Depreciation describes the devaluation of fixed capital through the associated wear and tear from its use in productive activities.
Formulas
The formula for gross domestic product is: GDP = C + G + I + (EX - IM).
- "C": consumer spending.
- "G": total amount of government spending.
- "I": total capital investments of companies.
- "EX": total exports of the country.
- "IM": total imports of the country.
The formula for gross national product is the same as for gross domestic product, also including income earned internationally.
The formula for the net national product is:
PNN = (market value of finished products + market value of services) - depreciation.
Alternatively, the net national product can be calculated as:
PNN = Gross National Product - Depreciation.
Similarly, net domestic product corresponds to gross domestic product minus depreciation.
Difference with GDP
Gross domestic product and gross national product measure the market value of all goods and services produced for final sale in an economy. The difference is how each term interprets what constitutes the economy.
GDP measures the internal levels of production in a country. It represents the monetary value of all goods and services produced within the geographic borders of a nation during a specific period of time.
The GNP measures the levels of production of all citizens or corporations of a country that work or produce in any country.
It is important to refer to both indicators when trying to obtain an accurate description of the economic value of a given country.
Gross domestic product is also differentiated from net national product, in that this is calculated after assigning the depreciation of gross national product.
Examples
For example, the US GNP measures the production levels of any US entity, regardless of where in the world it is conducting its actual production process, defining the economy in terms of the output of its citizens.
Therefore, it includes income received by residents who work or invest abroad.
The GNP of a country can be higher or lower than its GDP. It depends on the proportion of domestic and foreign manufacturers in a given country.
For example, China's GDP is $ 300 billion greater than its GNP, due to the large number of foreign companies that manufacture domestically, while the U.S. GNP is $ 250 billion greater than its GDP, due to the large amounts of production taking place outside the country's borders.
How is it calculated?
- The value of the gross national product is determined for the selected period of time.
- The depreciation value of the investments is determined for the selected period of time.
- The values determined in the standard formula are entered: the net national product is equal to the gross national product minus the depreciation of the investments.
- The standard formula is applied using the values that have been identified. The figure resulting from the calculation is the net national product.
Example
Suppose that the companies, citizens and entities of country XYZ produce this year within the country $ 3 trillion in goods and $ 2 trillion in services.
Assets used to produce these internal goods and services depreciated by $ 500 billion.
On the other hand, the capitals of the companies, citizens and resident entities of country XYZ produce this year outside the country $ 200 billion in goods and $ 100 billion in services.
Assets used to produce these international goods and services depreciated by $ 40 billion.
Using the PNN formula for country XYZ:
PNN = ($ 3 trillion + $ 2 trillion) + ($ 0.2 trillion + $ 0.1 trillion) - ($ 0.5 trillion + $ 0.04 trillion).
It would then be:
$ 5 trillion of GDP + $ 0.3 trillion of international income, resulting in $ 5.3 trillion of GNP.
Subtracting the total depreciation of $ 0.54 trillion, we obtain that the PNN = $ 4.76 trillion.
References
- Wikipedia, the free encyclopedia (2018). Net national product. Taken from: en.wikipedia.org.
- Investing Answers (2018). Net National Product (NNP). Taken from: investinganswers.com.
- Sam N. Austin (2017). How to Calculate the Net National Product. Bizfluent. Taken from: bizfluent.com.
- Editors of Encyclopaedia Britannica (2018). Gross national product. Encyclopaedia Britannica. Taken from: britannica.com.
- Tom Lutzenberger (2017). The Differences Between the GDP and the NNP. Bizfluent. Taken from: bizfluent.com.
- Investopedia (2018). What is the functional difference between GDP and GNP? Taken from: investopedia.com.