What Is Net National Product (NNP)?
Net national product (NNP) is the market value of all finished goods and services produced by a country’s residents (domestically and abroad) in a given period, after accounting for depreciation (the loss in value of capital used to produce those goods and services). In other words:
NNP = Gross National Product (GNP) − Depreciation (capital consumption allowance)
Key takeaways
– NNP measures output attributable to a nation’s residents once capital consumption is removed.
– It equals GNP minus depreciation (also called the capital consumption allowance, CCA).
– NNP is useful for assessing sustainable production levels and comparing living standards when adjusted per capita or for purchasing power.
– Measurement challenges include estimating depreciation, capturing human-capital changes, and international comparability.
(Sources: Investopedia; FRED, St. Louis Fed)
Formula and calculation of Net National Product (NNP)
Basic formulas:
– NNP = GNP − Depreciation (CCA)
– NNP = Market value of finished goods + Market value of finished services − Depreciation
Relation to other aggregates:
– GNP = GDP + Net income from abroad (factor income earned by residents abroad minus income paid to nonresidents)
– Net domestic product (NDP) = GDP − Depreciation
– NNP = NDP + Net income from abroad
If you need national income at factor cost:
– Net national income (NNI) or NNP at factor cost = NNP (market prices) − indirect taxes + subsidies
Understanding Net National Product (NNP)
– NNP focuses on the portion of output that remains after replacing worn-out capital—so it is often seen as a better indicator of sustainable production than gross measures.
– Depreciation (CCA) reflects the value of capital goods used up in production (machinery, buildings, infrastructure). National accounts typically measure CCA for the whole economy.
– NNP includes income earned by a nation’s residents abroad, unlike GDP which is limited to production within national borders.
Important
– Depreciation measurement is crucial and often imperfect. National statistical agencies estimate CCA using standard accounting and statistical methods, but choices about service lives, replacement costs, and valuation affect the result.
– NNP can be reported in nominal (current-price) or real (inflation-adjusted) terms. For comparisons over time, use real NNP. For cross-country comparisons, consider adjustments for purchasing power parity (PPP).
– Human capital depreciation is conceptually different and is not captured directly in standard CCA; national accounts generally focus on physical capital consumption.
Special considerations and limitations
– Measurement error and methodology: Different countries use different methods to compute CCA, making international comparisons subject to methodological differences.
– Informal economy: Much production in developing countries occurs off the books and can be missed by official statistics, understating both GNP and NNP.
– Exchange-rate effects: When converting NNP to a common currency, exchange-rate fluctuations can distort comparisons; PPP conversions help mitigate this.
– Human capital: Losses in skills (turnover, skill obsolescence) matter for long-run productive capacity but are not fully represented in standard depreciation measures.
– Environmental depletion: Standard NNP ignores depletion of natural resources and environmental degradation unless adjusted (green accounting).
Uses for Net National Product (NNP)
– Assessing sustainable output: NNP indicates how much output remains for consumption and investment after maintaining the capital stock.
– Policy and fiscal planning: Governments can use NNP to evaluate whether current production can be sustained without eroding capital.
– International comparisons: When combined with per-capita and PPP adjustments, NNP helps compare living standards across countries.
– Environmental and “green” accounting: Adjusted NNP measures (subtracting resource depletion or environmental damage) are used in natural-resource or environmental economics to assess sustainable income.
– Research and macro modeling: Economists use NNP in models of growth, national saving, and intertemporal policy analysis.
What is the national Net Product for the United States?
– According to the Federal Reserve (FRED, St. Louis Fed), U.S. net national product was just over $24 trillion (seasonally adjusted) in the second quarter of 2024. (FRED series: A027RC1Q027SBEA)
– For current and historical U.S. data on GNP, GDP, and capital consumption allowance, consult the U.S. Bureau of Economic Analysis (BEA) and FRED.
Relationship between Net National Product and Gross National Product
– GNP is the total market value of goods and services produced by residents (domestic + abroad) without subtracting capital consumption.
– NNP removes depreciation from GNP, giving a “net” measure that reflects the output that can be consumed or newly invested without reducing the existing capital stock.
– Mathematically: NNP = GNP − Depreciation.
How to calculate Net National Product: practical steps
Step 1 — Decide nominal vs real and country/period
– Choose whether you want nominal (current prices) or real (inflation-adjusted) NNP. For trend analysis use real NNP. Specify the period (quarterly, annual).
Step 2 — Obtain GNP (or GDP + net factor income from abroad)
– Data sources: national statistical agencies (BEA for the U.S.), FRED (St. Louis Fed), World Bank, IMF, OECD, Eurostat, UN National Accounts. If you have GDP, convert to GNP by adding net factor income from abroad.
Step 3 — Obtain depreciation (capital consumption allowance, CCA)
– Use the CCA entry from national accounts. For the U.S., BEA tables show capital consumption allowances by sector or for the whole economy. FRED also provides series for NNP and CCA.
Step 4 — Compute NNP
– NNP = GNP − CCA (for nominal or real series as appropriate).
Step 5 — Optional adjustments
– Convert to per capita: NNP per capita = NNP / population.
– Convert to PPP or a common currency for international comparisons.
– Adjust for taxes/subsidies for factor-cost measures: NNI = NNP − indirect taxes + subsidies.
– For “green” NNP, subtract estimates of resource depletion and environmental damages.
Step-by-step example (illustrative)
– Country A produces $1 trillion in goods and $3 trillion in services in a year (GNP = $4 trillion). Depreciation (CCA) = $0.5 trillion.
– NNP = GNP − Depreciation = $4.0T − $0.5T = $3.5 trillion.
Data sources and how to find them
– BEA (U.S.) — national income and product accounts, capital consumption allowance, GNP/GDP: https://www.bea.gov
– FRED (Federal Reserve Bank of St. Louis) — series for NNP and related aggregates: https://fred.stlouisfed.org (example series A027RC1Q027SBEA)
– World Bank, IMF, OECD, Eurostat, and national statistical offices for other countries.
The bottom line
NNP is a valuable macroeconomic metric that reflects the market value of output attributable to a country’s residents after accounting for capital consumption. It is useful for assessing sustainable production and for certain policy analyses, but it has limitations—primarily in how depreciation is estimated, how human capital and environmental depletion are treated, and in cross-country comparability. For accurate calculations, rely on official national-account data (GNP and CCA) and be explicit about nominal vs real measures, per-capita adjustments, and any PPP conversions.
Sources
– Investopedia, “Net National Product (NNP)” — Lara Antal.
– FRED Economic Data, St. Louis Fed, Net national product (A027RC1Q027SBEA).
– U.S. Bureau of Economic Analysis (BEA) — National Income and Product Accounts.
If you want, I can:
– Pull the latest GNP and CCA numbers for a specific country and compute NNP (nominal and real).
– Show how to convert NNP to per capita or PPP-adjusted terms.
– Explain how national statistical agencies estimate depreciation (methods and assumptions).