Net domestic product is defined as the net value of all the goods and services produced within a country’s geographic borders. Net domestic product is considered as a key indicator of economic growth of a country.
Net domestic product (NDP) is calculated by subtracting the value of depreciation of capital assets of the nation such as machinery, housing and vehicles from the gross domestic product (GDP).
NDP also takes into account the other factors such as obsolescence and complete destruction of the asset. The depreciation is also referred to as capital consumption allowance.
If the country is unable to replace all the capital stock that is lost through depreciation, the result will be a fall in the GDP of the country.
It is considered good for an economy if the gap between GDP and NDP is narrower or smaller, which will indicate economic balance, while a wider gap between the GDP and NDP shows increase in the value of obsolescence.
Such an increase along with deterioration of the capital stock value indicates economic stagnation.
The formula for NDP can be expressed as
NDP = GDP – Depreciation
NDP = Net Domestic Product
GDP = Gross Domestic Product
Depreciation = Depreciation of capital assets such as equipment, vehicles, housing, etc.
As NDP takes into account the depreciation of capital assets, it is considered to be superior to the GDP as a measure of well being of a nation.
This completes the concept of NDP which serves as a very important factor for determining the economic health of a country. To read about more such interesting concepts on Economics for Commerce, stay tuned to CoolGyan’S.