Net domestic product

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Net Domestic Product(NDP) is variant of national income accounting equal to the Gross Domestic Product (GDP) of a nation minus any depreciation of its capital stock. The depreciated capital is sometimes referred to as the "capital consumption allowance".[1] Some economists see NDP as a useful alternative to GDP.[2]

The Basics[edit]

NDP is meant to consider the depreciation in a nation's capital stock over some time period in order to estimate how much investment is needed to maintain current levels of output.[3]

The formula is as follows

GDP-D=NDP

Where GDP is Gross Domestic Product, D is capital depreciation, and NDP is Net Domestic Product.

Why it's Useful[edit]

As roads are wore down, computers break, and machines rust they all need to be fixed. An increase in investment spending meant to prop up existing capital, public or private, does not make anyone better off. Rather, it simply maintains existing production capacity. Suppose there is a big increase in GDP in the late 21st century due to spending on things to combat the negatives of global warming. All that investment spending to engage in flood control, rebuild burned homes, or relocate factories and power plants won't be making anyone better off, even though conventional GDP statistics how a huge boost in investment. The main issue with NDP is the difficulty in measuring all depreciation.[4]

Net National Product[edit]

A similar concept to NDP. Net National Product subtracts deprecation from Gross National Product.

The formula is as follows

GNP-D=NNP

External Links[edit]

Fred: Net Domestic Product

References[edit]