by Net National Product is the market value of all final goods and services after allowing for depreciation. It is also called National Income at market price. When charges for depreciation are deducted from the gross national product.
Net national product (NNP) refers to gross national product (GNP), i.e., the total market value of all final goods and services produced by the factors of production of a country or other polity during a given time period, minus depreciation. Similarly, net domestic product (NDP) corresponds to gross domestic product (GDP) minus depreciation. Depreciation describes the devaluation of fixed capital through wear and tear associated with its use in productive activities.
Closely related to the concept of GNP is another concept called NNP of a country. NNP is a more accurate measure of total value of goods and services by a country. It is derived from GNP figures. As a rough estimate, GNP is very useful indicator of total production of a country. But if we are interested to have an accurate and true measure of what a country is producing and what is available for uses, then GNP has a serious defect.
In national accounting, net national product (NNP) and net domestic product (NDP) are given by the two following formulas:
NNP=GNP-Depreciation
NDP=GDP-Depreciation
Anyway, to measure NNP, we must make a distinction between gross investment (IG) and net investment (IN). Gross investment refers to total expenditure for new plant, equipment, etc., plus the change in inventories. Net investment is equal to gross investment less depreciation.
That is,
IN = IG – depreciation
Since, GNP = C + IG + G + (X – M),
NNP = C + IN + G + (X – M)
Or, NNP = GNP – depreciation
Although NNP gives us the better measure of an economy’s performance, we pay more attention to GNP. This is because estimation of NNP is difficult in practice, as one has to measure depreciation to obtain the net investment figure. In practice, GNP is the more commonly used indicator than NNP.
Importance of the NNP
To many of us, the net national product may seem an insignificant figure another number among the many items discussed by economists. However, we will be mistaken to not understand the importance and significance it represents in our daily lives.
A vibrant economy, represented in part by the NNP, can help us to decide if a particular country is worth moving to or if the economy is growing at a pace that we feel comfortable being paid in the local currency. Thus, the NNP can be a useful figure to understand and interpret, especially when making comparisons among locales.
Sustainability and the NNP
Environmental sustainability is a topic that concerns us all as global citizens. It’s been suggested that the net national product depreciation includes an element that accounts for natural resource and environmental depreciation. It will help measure the true impact of certain types of growth on the country, including what can be considered environmental assets. Forestry, mining, and toxic fumes will all weigh down on the NNP and can provide a more long-term view of a company’s strategic growth strategy.
The measurement of environmental impacts when calculating a countries NNP can be considered controversial. Difficulties will no doubt arise when attempting to create a precise measurement in determining how much depreciation the extraction of raw materials should account for.
While precise measurements will be difficult to gain a consensus around, measuring the environmental impacts and being aware of production methods are important factors to consider when balancing the protection of the environment, while also ensuring economic growth.
