Net National Product (NNP)

Definition

Net National Product (NNP) is the total market value of finished goods and services produced by a country’s residents—both domestically and abroad—after subtracting depreciation (the loss in value of capital used in production). It reflects the economy’s net output available for consumption and investment once worn-out or obsolete capital has been replaced.

How NNP is calculated

Primary formulas:
– NNP = Gross National Product (GNP) − Depreciation
– NNP = Market value of finished goods + Market value of finished services − Depreciation

Example:
– If a country produces $1 trillion in goods and $3 trillion in services, and depreciation is $0.5 trillion:
– NNP = $1T + $3T − $0.5T = $3.5T

Depreciation (Capital Consumption Allowance)

Depreciation—often called the capital consumption allowance (CCA)—is the estimated amount of capital value used up during production. It includes:
– Physical capital depreciation: wear and tear on machinery, buildings, equipment.
– Human capital depreciation: loss of workforce skills or productivity due to turnover or aging, which may require additional spending on training and hiring.

Accounting for depreciation is essential to evaluate whether an economy is maintaining, increasing, or depleting its productive base.

Relationship to GDP, GNP, and NDP

• GDP (Gross Domestic Product): value of goods and services produced within a country’s borders.
• GNP (Gross National Product): value produced by a country’s residents, regardless of location.
• NDP (Net Domestic Product): GDP minus depreciation.
• NNP: GNP minus depreciation.

NNP differs from GDP/NDP by including the production of a nation’s residents abroad and excluding capital consumption.

Uses and applications

• Measuring sustainable national income: NNP indicates how much output can be consumed without reducing future productive capacity.
• Environmental economics: used to assess the sustainability of resource use by accounting for depletion and degradation of natural capital.
• International activity: captures income from nationals working or operating businesses abroad that GDP excludes.
• Policy and investment decisions: helps governments and investors understand maintenance needs for the capital stock and the true net increase in national wealth.

Limitations and considerations

• Estimating depreciation can be imprecise, especially for human and natural capital.
• NNP excludes informal economic activity and may be affected by valuation and price changes.
• Comparisons across countries can be complicated by differing accounting methods and data quality.

Recent data example

As an illustration of scale, U.S. NNP was reported at just over $24 trillion in the second quarter of 2024 (seasonally adjusted, Federal Reserve data).

Key takeaways

• NNP = GNP − Depreciation; it measures net output available after replacing worn-out capital.
• It provides a clearer view of an economy’s sustainable productive capacity than gross measures alone.
• Depreciation and the treatment of physical, human, and natural capital are central to NNP’s interpretation.
• NNP is useful for sustainability assessments, cross-border income accounting, and long-term policy planning.