What is Net National Product (NNP)?
To represent the difference between gross national product (GNP) and depreciation, a term that is often used is known as Net National Product (NNP). When discussed numerical terms, it can be denoted as the total market value of the goods and services, which are produced by a nation in a specific period with the depreciation subtracted from it.
The tool most used by economists to report on the growth and the strength of a nation is NNP. As well as to evaluate a country’s growth against others. It is said to be a useful comparative measurement that can also provide indications of the country’s complete economic state. Regardless of less utilization in recent times, it still provides insights that are valuable in the area of economic growth and market health.
When a country’s net national product (NNP) faces a downfall. Recession-proof industries are considered by the businesses for a move.
Similarly, when a country’s net national product (NNP) rises. The focus of the businesses shifts on the industries that are led by consumers, for instance, travel and sales for more sales production.
The wear and tear of the capital assets refer to the depreciation that is calculated, and then when there is workforce turnover, the depreciation of human capital is observed.
To understand the resources that will be required to be spent by the companies to find new employees, the extent of workforce turnover comes in aid.
To calculate net national product the following formula can be used:
GNP – Depreciation = NNP
- GNP (gross national product): all the final goods and services generated and manufactured in a period within a nation.
- Depreciation: a reduction in the value of an asset over time.
So, it can deduce that the concept of NNP is among the indicators of a nation in terms of economic health.
Example: For instance, if one country generates goods worth $2 trillion and services worth $6 trillion in the year of 2018 and $500 billion are the depreciated services and assets utilized to produce those goods. By using the formula of NNP, the country’s NNP is:
NNP= GNP- Depreciation
NNP= $2 trillion + $6 trillion – $0.5 trillion
= $6.5 trillion
World Bank issues the data of NNP at different levels for different countries to keep an eye on changing wealth of nations.
Formula of NNP at Market Price
GNP at market price – Depreciation = NNP at market price
Understanding Net National Product (NNP)
On annual basis, NNP is often examined as an approach to measure the nation’s success to continue standards of minimum production. Keep track of an economy can be a useful method, as all citizens are taken into account. Irrespective of how that money is made, and also acknowledge the fact to keep the standards of production high the capital must be spent.
The nation’s currency the NNP represents is how it is expressed. This means that, for example, in the United States, in dollars (USD)the NNP is expressed, while on the other hand the European Union which is a member of nations, the NNP is expressed in euros (EUR).
The NNP can be derived from the GNP when of any assets the depreciation is subtracted. The loss of the value of assets needs to be assessed that are attributed to using normally and aging the depreciation figure is determined.
The relationship that is between a nation’s GNP and NNP is similar to the relationship that is between the nation’s GDP (gross domestic product) and NDP (net domestic product)
What is the importance of the NNP?
A lot of us might consider the net national product as an insignificant figure which comes under the many items discussed by economists. Although, it would be a mistake to not understand the importance and significance it plays in our daily lives.
To decide whether a particular country is worth moving or if the economy is growing at a pace that we feel comfortable being paid in the local currency, the economy, which is represented by in part by the NNP helps us. Hence, the NNP can prove to be a helpful figure to understand and interpret, particularly when making comparisons between locales.
NNP at Factor Cost
National income is also termed as the Net National Product. At the factor cost the Net National Product (NNP) is equal to the total value added at factor cost or net domestic product (NDP) at factor cost and overseas net factor income.
NNP at factor cost = NNP at market price – Net indirect tax
Food for thought
NNP has particular usefulness in the field of environmental economics. The depletion of natural resources is associated with the model of NNP, which can also be used to evaluate if certain activities in an environment which is particular are sustainable.
The value of goods and services which are produced overseas is a factor of the NNP. This leads to the point that the activities of manufactures of the U.K in Asia, for particular, count toward the U.K’ NNP.
However, in cases of GDP and GNP, it is not the same, which bounds their interpretation of the economy to the country’s geographical borders.
The NNP and Sustainability
It is no doubt that environmental sustainability concerns all global citizens. A suggestion that has been made is that the net national product depreciation must include an element to account for the environmental depreciation and natural resources. This would aid in measuring the true impact of the growth of certain types on the country, also including what can be considered as environmental assets. The factors that will weigh down on the NNP and also provide a long-term view of the strategic growth strategy of a company are mining, toxic fumes, and forestry.
The thing which is considered to be controversial is the measurement of environmental impacts when calculating a country’s NNP. It is no doubt that difficulties will occur when an attempt to create a precise measurement is made to determine how much depreciation the extraction of raw materials should account for. Gaining a consensus around with precise measurements will be difficult. Measurement of environmental impacts and staying aware of production methods are essential factors to be considered when the protection of the environment is to be balanced, also ensuring economic growth.
The net national product (NNP) is the gross national product (GNP). The overall value of the services and the finished goods produced by a country’s citizen domestically and overseas, minus depreciation.
In continuing the minimum production standards, to measure the success of a nation on an annual basis the NNP is often examined.
To measure national income and economic prosperity, one of the most popular method is considered the gross domestic product (GDP), however, the prominently used method in environmental economics is NNP.