A Quick Note on Net National Product (NNP)

NNP stands for Net National Product. It refers to the monetary value of goods and services that the citizens of a country, both those in the country and abroad, produce within a given period.

This factor is used when trying to know the country’s development rate and evaluate how much growth is being attained by the citizens of a particular country, considering the citizens living in the country and abroad.

In simpler terms, NNP is equivalent to the Gross National Product (GNP), the total value of a country’s annual output, minus depreciation (the amount of Gross National Product GNP required to purchase new goods to maintain existing stock)

In order words, NNP is related to GNP in that NNP is the difference between the GNP of a country and its net depreciation.

How to calculate NNP

NNP calculation follows a general formula known as the NNP Formula.

This formula states that:

NNP = GNP – Depreciation

GNP is calculated using the formula:

Y (GNP) = C + I + G + X + Z. 

Where: 

C stands for Consumption Expenditure

I stands for Investment

G stands for Government Expenditure

X stands for Net Exports (Value of imports minus value of exports)

Z stands for Net Income (Net income inflow from investments made abroad minus net income outflow to foreign countries).

NNP vs. NDP

Net National Product, NNP and Net Domestic Product, NDP are somewhat similar but differ in many ways.

NNP is the monetary value of the goods and services that the citizens of a country, both those in the country and those abroad, produce within a stated time, usually annually. NDP is a measure of the output of the economy of a country and also accounts for depreciation.

Notably, NNP does not account for depreciation, while NDP does. NNP only focuses on the general economic growth of a country through the goods and services produced by its citizens.

On the other hand, the NDP, in its entirety, accounts for depreciation in the economy. It does not focus on just the growth aspect; rather, it focuses also on the depreciation too.

Another difference between NNP and NDP is that NNP is calculated by subtracting depreciation from GNP while NDP is calculated by subtracting depreciation from GDP.

NNP is a function of GNP, while NDP is a function of GDP. This means that a rise or fall in the GNP of a country will directly affect the NNP values the country would have. This applies to the NDP also. A rise or fall in a country’s GDP would also have a massive effect on its NDP.

Importance of NNP

• A country’s growth is reported by economists using the NNP of the country.

The NNP is a major factor that helps economists report the growth and strength of a country.

By calculating the NNP, an estimate of a nation’s growth can be obtained.

• In determining a country’s growth rate, its NNP is used in comparison to another country’s.

NNP serves as a major determinant of a country’s growth rate. By comparing a country’s NNP to another country’s, the growth status of the country is gauged.

Limitations of NNP

The Net National Product (NNP) is an important indicator of a country’s economic growth rate. However, it is seldom used because of the complicated mathematical process to calculate it.

Conclusion

We have learnt the meaning of Net National Product (NNP) and its definition as the monetary value of the goods and services that the citizens of a country, both those in the country and those abroad, produce within a given period.

We have also established that it is used to determine the economic growth of a nation and serves as a major factor of growth assessment for a nation by comparing its NNP with that of another.

Determination of a nation’s economic growth status is dependent on the country’s Net National Product value.

Net National Product and Net Domestic Product values are dependent respectively on Gross National Product and Gross Domestic Product values.

NNP is calculated by subtracting depreciation from the GNP through the formula:

NNP = GNP – Depreciation

NDP is calculated by subtracting depreciation from GDP.

NNP has its limitations as economists do not readily use it due to its complex formula.