Net domestic product

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]

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The Basics

NDP's purpose is 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 for calculating NDP 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

As roads wear down, computers break, and machines rust they 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

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

The formula is as follows

GNP-D=NNP

Fred: Net Domestic Product

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References
  1. Kenton, Will. "Capital Consumption Allowance (CCA)". Investopedia.
  2. Spant, R. (2003). "Why net domestic product should replace gross domestic product as a measure of economic growth." International Productivity Monitor, 39-43.
  3. "Net domestic product (NDP)" www.bea.gov.
  4. Glossary:Net domestic product (NDP)
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