Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Net Domestic Product (NDP)

What it is:

Net domestic product (NDP) represents the net book value of all goods and services produced within a nation's geographic borders over a specified period of time.

How it works (Example):

Gross domestic product (GDP) is the broadest quantitative measure of a nation's total economic activity. Net domestic product (NDP) adjusts this figure by subtracting depreciation on the country's capital assets (housing, machinery and vehicles, for example). The depreciation is officially referred to as the "capital consumption allowance."

The Department of Commerce releases NDP data for the U.S. economy at 8:30 a.m. EST on the last business day of the quarter.

A common equation used to calculate NDP is as follows:

NDP = Gross domestic product (GDP) - Depreciation

Similarly,

NDP = Consumption + Government Expenditures + Investment +Exports - Imports - Depreciation

See the GDP definition for more on the components used to calculate GDP.

Why it Matters:

Net domestic product provides insight into the age or obsolescence of a country's assets, as well as how much the country has to spend to maintain its current GDP. After all, if the country does not replace the capital value lost to depreciation, GDP will fall.

Note, for instance, that if a country spends $3 trillion on new assets but also records $4 trillion in depreciation, there is no real capital-related economic growth going on, no matter how much the country may publicize the $3 trillion in spending. Similarly, growth or shrinkage in the gap between NDP and GDP can indicate growing economic stagnation or "progress" in a country.

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