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What is a Net Domestic Product?

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  • Written By: Angela Wagley
  • Edited By: J.T. Gale
  • Last Modified Date: 14 November 2016
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In economics, the net domestic product (NDP) is the measurement of a nation’s economic activity that is calculated by subtracting depreciation from the gross domestic product (GDP). The net domestic product takes into account the capital consumed over the year; this depreciation is often referred to as capital consumption allowance, which represents how much money would be required to replace the assets that have been used. Some economists consider the net domestic product to be a more accurate way to measure the health of the economy than the gross domestic product; therefore, it typically is used more often.

GDP is the value of the services and finished goods that are produced within a country’s borders during a specific time period — usually one year. The GDP includes all government outlays, public and private consumption, investments and exports, minus any imports. Sometimes, the gross domestic product is used to gauge the standard of living of a country. It can be used as an indicator of a country's economic health although some economists maintain that the GDP serves as a measure of a nation’s productivity and not its material well-being.

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The net domestic product is an estimate of how much money a country must spend to maintain their current gross domestic product. If a country is not able to replace the capital that is lost through depreciation, the gross domestic product will fall. A large gap between the gross domestic product and the net domestic product may indicate the possible obsolescence of capital goods. Alternately, a narrowing gap would likely mean that the condition of the country’s capital stock is improving.

Gross domestic income (GDI) is another statistic used by the Federal Reserve to measure the economic activity of a country. The GDI is based on all income earned while producing goods and services within a country’s borders. It is different from the gross domestic product, which is a measure of expenditure.

The gross national product (GNP) is the total value from domestic and foreign sources that the residents of a country claim. It is the value of the goods and services produced within a country, plus the net income received by residents from overseas. Economists use all of these different factors to analyze the production and income of a country to obtain a fairly accurate picture of the state of that country’s economy.

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