Net National Product - NNP

What is the 'Net National Product - NNP'

The net national product (NNP) is the monetary value of finished goods and services produced by a country's citizens, whether overseas or resident, in the time period being measured (i.e., the gross national product, or GNP) minus the amount of GNP required to purchase new goods to maintain existing stock (i.e., depreciation). Alternatively, the NNP can be calculated as total payroll compensation plus net indirect tax on current production plus operating surpluses.

BREAKING DOWN 'Net National Product - NNP'

NNP is the amount of goods that can be consumed within a nation each year without reducing the amount that can be consumed in following years.

NNP provides an expression of the net value of the goods and services a nation has produced during a specific time, often examined on an annual basis as a way to measure a nation’s success in continuing minimum production standards. The NNP is expressed in the currency of the nation it represents. In the United States, the NNP would be expressed as a dollar amount, whereas it would be expressed in euro for EU member nations, such as Belgium.

The NNP can be extrapolated from the GNP by subtracting the depreciation of any assets, also known as the capital consumption allowance, from its total. The depreciation of asset's figure is determined by assessing the loss of value of assets attributed to normal use and aging. The relationship between a nation's GNP and NNP is similar to the relationship between its gross domestic product (GDP) and net domestic product (NDP).

Understanding the Capital Consumption Allowance

The capital consumption allowance provides a mechanism to measure the need to replace certain assets and resources to maintain a specified level of national productivity. It is generally divided into two categories: physical capital and human capital.

Physical capital can include real estate, machinery or any other tangible resource used in the production of goods and services aside from the human element. Human capital covers the skills, knowledge and abilities of a workforce to produce goods and services, as well as the necessary training or education that may be required to maintain production standards.

Physical capital experiences depreciation based on physical wear and tear, while human capital experiences depreciation based on workforce turnover.

Net National Product and Environmental Economics

The NNP has particular usefulness in terms of environmental economics. It provides a model relating to the depletion of natural resources, and it may be used to determine whether certain activities are sustainable within a particular environment.