What is the difference between the terms gross domestic product and net national product?

Answer 1

The Net Domestic Product (NDP) equals the Gross Domestic Product (GDP) minus depreciation on a country's Capital (economics) goods. This is an estimate of how much the country has to spend to maintain the current GDP. If the country is not able to replace the capital stock lost through depreciation, then GDP will fall. In addition, a growing gap between GDP and NDP indicates increasing obsolescence of capital goods, while a narrowing gap would mean that the condition of capital stock in the country is improving. Given the enormous amount of work that goes into producing statistics on econom- ic growth, it is understandable that those who produce them are prone to defend their qual- ity and to argue that alternative measures only marginally alter the overall picture. That may be true in many cases. But we must keep in mind that statistics are often used to compare countries or periods of time, e.g. the acceleration or decelera- tion of economic growth between two dates. With that type of comparison, different measurement techniques can have a decisive influence on results and conclusions, and may even affect policy rec- ommendations. My principal criticism of the growth meas- ures that currently predominate has to do with the almost total fixation on Gross Domestic Product (GDP). In my view, there should be much less emphasis on GDP as the main yard- stick of economic growth, and a much greater emphasis on Net Domestic Product (NDP). The most basic measure of economic output is of course GDP, which includes all expenditures for investment, regardless of whether they are used to add to the capital stock, or simply to replace worn out or obsolete equipment and software. The portion of investment spending that is used to replace worn out and obsolete equipment — depreciation — while essential for maintaining the level of output, does not increase the economy’s capacities in any way. If GDP were to grow simply as a result of the fact that more money was being spent to maintain the capital stock because of increased deprecia- tion, it would not mean that anyone had been made better off. There would be no more resources available for consumption. Nor would there be any more output available in future periods, because the size of the capital stock would not have increased. In such a scenario, since equipment is wearing out more quickly, it is necessary to run harder just to stay in the same place. The economy must devote more resources every year to replace worn out and obsolete equipment, just to keep the capital stock intact. The additional resources used to replace this equipment are recorded in the national accounts, but it does not imply that anyone is better off. reference: Roland Spant "Why Net Domestic Product should Replace Gros Domestic Product as a Measure of Economic Growth" http://www.csls.ca/ipm/7/spant-e.pdf (2003)