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Different national income measures

Gross National Product (GNP) and Net National Product (NNP) - gross and net measures

Just as the national assets (the capital stock) work towards creating new wealth, so some of them wear out and need to be replaced (this wearing out is called depreciation). Unless worn out capital is replaced, the national capital stock shrinks and negative economic growth could be recorded. To stop this from happening, part of national income each year must be invested to repair, replace and make good that part of the capital stock, which ceases to be adequate for use.

When we mention Gross National Product (GNP), we are referring to national income BEFORE the amount needed to replace capital has been deducted. This amount is called capital consumption (or depreciation) and, once this has been deducted, we call the figure Net National Product (NNP).


Net National Product

Net National Product is calculated using the following formula:

NNP = GNP minus capital consumption

Increasingly gross national product (GNP) is being referred to a gross national income (GNI). So remember if you are given GNI data it is the same at GNP!

Gross Domestic product (GDP) and Gross National Product (GNP) - national and domestic

Gross Domestic Product (GDP) is similar to Gross National Product (GNP/GNI), but it only measures the flow of output produced within the country. GNP/GNI adds in property income flowing to domestic economic agents from their investments outside the country. It also includes a deduction of those sums that flow out of the country. Property income is income derived from the ownership of assets in the form of profits, interest and rent.


Net National Product

Gross National Product is calculated using the following formula:

GNP/GNI = GDP + net property from abroad (or minus net property income paid abroad)

Although this may appear to be a rather dry, inconsequential topic, the question of property income flows is often of life and death significance for millions of people in the developing countries. While net property income is often positive for developed countries, the figure will inevitably be negative for many of the poorest countries of the world. This reflects their indebtedness to the financial institutions and governments of the industrialised countries and manifests itself in the form of large outflows of interest repayments. It often also reflects the domination of less developed countries by multinational corporations who repatriate profits made from these countries to their centre of operations, inevitably somewhere in the richer part of the world. The impact on living standards of the peoples of these countries is dramatic. These issues are discussed in more detail in section 4.5