CONCEPT OF NET NATIONAL PRODUCT AND GROSS NATIONAL PRODUCT
Net national product:
Net national product is the financial value of finished goods and services provided by a country’s citizens, abroad and domestically. It is the equivalent of the gross national product , the total value of a nation’s yearly output, minus the amount of GNP needed to purchase new goods to maintain existing stock, otherwise known as depreciation.
Net national product or NNP is the market value of all the finished goods and services that are produced by citizens of a nation, living domestically and internationally during a year.Net national product is also referred to as the value that is obtained by subtracting depreciation from the gross national product (GNP). Net national product considers all the goods, products and services that are manufactured by the country’s citizens, irrespective of their location, or in other words, net national product considers products that are produced domestically and also from overseas. Net national product is one of the important metrics for determining the actual growth of a nation. It measures how much the country is able to consume in a given period of time.
When the net national product (NNP) of a country declines or falls, then the businesses consider moving to industries that are deemed to be recession-proof. In case there is a rise in net national product, then the businesses shift their focus on industries that are consumer led, such as travel and sales in order to generate more sales.The depreciation that is calculated refers to the wear and tear of the capital assets and the depreciation of human capital is observed when there is workforce turnover.The extent of workforce turnover helps in understanding the resources that will be required to be spent by the companies in order to find new employees.
The net national product can be calculated by the following formula
NNP = GNP – Depreciation
Gross National Product:
Gross National Product is the total value of all finished goods and services produced by a country’s citizens in a given financial year, irrespective of their location. GNP also measures the output generated by a country’s businesses located domestically or abroad. It can be defined as a piece of economic statistic that comprises Gross Domestic Product (GDP), and income earned by the residents from investments made overseas.
Simply put, GNP is a superset of the GDP. While GDP confines its analysis of the economy to the geographical borders of the country, GNP extends it to also take account of the net overseas economic activities performed by its residents.
Basically, GNP signifies how a country’s people contribute to its economy. It considers citizenship, regardless of the location of the ownership. GNP does not include foreign residents’ income earned within the country. GNP also does not count any income earned in India by foreign residents or businesses, and excludes products manufactured in the country by foreign companies.
In calculation, GNP adds government expenditure, personal consumption expenditure, private domestic investments, net exports, and income earned by nationals overseas, and eliminates the income of foreign residents within the domestic economy. Moreover, GNP omits the value of intermediary goods to avoid double counting, as these entries get included in the value of final products and services.
For calculating GNP, only the final goods and services are considered. Intermediate goods are avoided as it leads to double counting.
To calculate the GNP for a nation, the following factors are considered:
- Consumption expenditure
- Investment
- Government expenditure
- Net exports (Total exports minus total imports)
- Net income (Income earned by residents in foreign countries minus income earned by foreigners in the country)
The mathematical formula for calculating GNP is expressed as follows:
Y = C + I + G + X + Z
Or
GNP = Consumption expenditure + Investment + Government expenditure + Net exports + Net income
GNP considers the manufacturing of goods like equipment, machinery, agricultural products, vehicles as well as some services like consulting, education, and health care.The cost of providing the services is not calculated separately as it is included in the price of the final products.GNP per capita is used for the calculation of GNP on a country-to-country comparison, while it becomes problematic when a citizen holds a dual citizenship. In that case, their income is contributed as GNP for each of the respective countries, which leads to double counting.
