What is Net National Product?

Net national product (NNP) is the monetary value of finished goods and services produced by a country's citizens, overseas and domestically, in a given period (i.e., the gross national product (GNP) minus the amount of GNP required to purchase new goods to maintain existing stock (i.e., depreciation). 

Understanding Net National Product (NNP)

NNP is 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 is expressed as in dollars; for EU member nations, the NNP is expressed in euros.

The NNP can be extrapolated from the GNP by subtracting the depreciation of any assets, also known as the capital consumption allowance. The depreciation of the asset's figure is determined by assessing the loss of the 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).

Calculating NNP

The formula for NNP is:

NNP = Market Value of Finished Goods + Market Value of Finished Services - Depreciation

or, NNP can be calculated as

NNP = Gross National Product - Depreciation

For example, if Country A produces $1 trillion worth of goods and $3 trillion worth of services in 2018, and the assets used to produce those goods and services are depreciated by $500 billion, using the formula above, Country A's NNP is:

NNP = $1 trillion + $3 trillion - $0.5 trillion = $3.5 trillion

Understanding the Capital Consumption Allowance

The capital consumption allowance is an indicator of the need to replace certain assets and resources to maintain a specified level of national productivity. It is 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 for the field of environmental economics. The NNP is a model associated with the depletion of natural resources, and it may be used to determine whether certain activities are sustainable within a particular environment.