Net National Product (NNP)

What is Net National Product (NNP)?

Net national product (NNP) is a term that is often used to represent the difference between gross national product and depreciation. In numerical terms, the NNP is the total market value of the goods and services produced by a nation during a specified period (generally a year) with depreciation subtracted from it.

The NNP is a tool generally used by economists to report on the growth and strength of a nation-state and can be used to evaluate a country’s growth against others. It is a useful comparative measurement and can provide indications of the overall economic state of a country. Despite falling out of use in recent times, it can still provide valuable insights into economic growth and market health.

How to Calculate the Net National Product

The net national product is generally represented by a simplistic formula illustrated below:

Net National Product (NNP) = Gross National Product (GNP) – Depreciation

• The gross national product portion of the NNP formula includes all the final goods and services manufactured and produced within a nation with a period.
• The depreciation component of the formula is a representation of the deprecation of the assets held by a country.

Importance of the NNP

To many of us, the net national product may seem an insignificant figure – another number among the many items discussed by economists. However, we would be mistaken to not understand the importance and significance it represents in our daily lives.

A vibrant economy, represented in part by the NNP, can help us to decide if a particular country is worth moving to or if the economy is growing at a pace that we feel comfortable being paid in the local currency. Thus, the NNP can be a useful figure to understand and interpret, especially when making comparisons among locales.

Sustainability and the NNP

Environmental sustainability is a topic that concerns us all as global citizens. It’s been suggested that the net national product depreciation should include an element that accounts for natural resource and environmental depreciation. It would help measure the true impact of certain types of growth on the country, including what can be considered environmental assets. Forestry, mining, and toxic fumes will all weigh down on the NNP and can provide a more long-term view of a company’s strategic growth strategy.

The measurement of environmental impacts when calculating a country’s NNP can be considered controversial. Difficulties will no doubt arise when attempting to create a precise measurement in determining how much depreciation the extraction of raw materials should account for.

While precise measurements will be difficult to gain a consensus around, measuring the environmental impacts and being aware of production methods are important factors to consider when balancing the protection of the environment while also ensuring economic growth.

NNP – Transitioning to Net Domestic Product

In the past, economists and individuals passionate about finance often switched various measurements that calculate economic growth to new standard bearers in the world of financial reporting. In the early 1990s, reporting of the NNP became less commonplace over the newer net domestic product. It is partly due to the rise in GDP as the often-reported new benchmark and the net domestic product’s relationship to it.

Related Readings

CFI is the official provider of the global Commercial Banking & Credit Analyst (CBCA)™ certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional CFI resources below will be useful:

• Depreciation Methods
• Gross National Product
• Nominal GDP vs. Real GDP
• Environmental, Social, and Governance (ESG)
• See all economics resources