# What Is Net Domestic Product (NDP)? Formula for Calculation

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## What Is Net Domestic Product (NDP)?

Net domestic product (NDP) is an annual measure of the economic output of a nation that is calculated by subtracting [depreciation](https://www.investopedia.com/terms/d/depreciation.asp) from [gross domestic product (GDP)](https://www.investopedia.com/terms/g/gdp.asp). It is the market value of goods and services produced in a nation minus the value of the capital used to produce those goods and services.

### Key Takeaways

*   Net domestic product (NDP) is an annual measure of the economic output of a nation that is adjusted to account for depreciation.
*   It is calculated by subtracting depreciation from the gross domestic product (GDP).
*   NDP, along with GDP, gross national income (GNI), disposable income, and personal income, is one of the key gauges of economic growth that is reported quarterly by the Bureau of Economic Analysis (BEA).
*   An increase in NDP would indicate growing economic health, while a decrease would indicate economic stagnation.

## Understanding Net Domestic Product (NDP)

NDP, along with GDP, [disposable income](https://www.investopedia.com/terms/d/disposableincome.asp), and [personal income](https://www.investopedia.com/terms/p/personalincome.asp), is one of the key gauges of economic growth that is reported every quarter by the Bureau of Economic Analysis (BEA).

Though GDP is frequently cited when [assessing the economic health of a country](https://www.investopedia.com/terms/n/net-national-product.asp), NDP puts into perspective the pace at which capital assets degrade and must be replaced. This is important as failure to take action would result in a decrease in the country's GDP.

NDP is used as an estimate of sustainable products, which is a rough measure of the level of consumption that can be maintained in an economy while leaving capital assets intact. An increase in NDP indicates a growing economy while a decrease indicates a stagnating or declining economy.

The calculation for NDP is as follows:

> $NDP = GDP - Depreciation$  
> 
> ## Capital Consumption Allowance
> 
> NDP accounts for capital that has been consumed over the year in the form of housing, vehicle, or machinery deterioration. The depreciation accounted for is often referred to as [capital consumption allowance](https://www.investopedia.com/terms/c/capital-consumption-allowance-cca.asp) and represents the amount needed to replace those depreciated assets.  
> 
> The frequency and scope of such replacements can vary by type of capital assets. Machinery that is put to regular use may need parts replaced regularly until the entire piece of equipment is no longer usable.
> 
> While that may take many years, barring unexpected damage or defects, there is a cycle of equipment failure and replacement. Part of the machinery in a factory’s [production line](https://www.investopedia.com/terms/p/product-line.asp) may need to be replaced while another set of similar machines continues to function within the same factory. The acquisition of the replacement machinery would be factored into the depreciation aspect of the NPI.
> 
> This differs from an expansion of factory operations—for example, the opening of a new site, adding to the total number of factories.
> 
> The acquisition of new machines for the new factory would represent a gain because the demand was driven by the need to increase the scope of the operations, rather than serve as a replacement. This would mean the purchased machine would qualify as a gain for the NDP.
> 
> The construction of new homes on previously unused real estate can also represent a gain for the NDP if the residences are not intended to replace defunct or demolished property. For example, in many urban areas, efforts may be made to re-purpose underutilized real estate that has fallen into disrepair.
> 
> Instead of expanding the sprawl of the city, older buildings might be torn down and replaced by new construction intended to fill the same use as the predecessor building. Such an example would qualify as depreciation and replacement. By contrast, if a new housing community is developed, the construction of residences would be contributory to NDP.
> 
> ## What Is the Formula for NDP?
> 
> The formula for net domestic product is NDP = GDP - depreciation. It is gross domestic product minus depreciation. As the Bureau of Economic Analysis defines it, it is GDP less the consumption of fixed capital (CFC).
> 
> ## What Is the Difference Between NDP and NNP?
> 
> NDP is net domestic product calculated as gross domestic product minus depreciation. It is the economic output of a nation subtracted by capital consumption. NNP is net national product and is the market value of all the finished goods and services produced by the citizens of a nation both domestically and internationally.
> 
> ## What Is the Difference Between GDP and NDP?
> 
> Both gross domestic product (GDP) and net domestic product (NDP) are measures of economic output in a nation. GDP is the value of all goods and services produced in a nation and net domestic product is a factor of that, in that it takes GDP and subtracts the depreciation of capital assets, such as machinery. NDP is often regarded as a better picture of economic health because by taking into consideration the depreciation of assets, it better reflects sustainable production levels.
> 
> ## The Bottom Line
> 
> Net domestic product (NDP) provides a more accurate picture of economic health than GDP because it takes into account the depreciation of capital assets. It reflects sustainable production levels, ensuring that capital deterioration is replaced to maintain stability.
> 
> An increase in NDP signals economic growth while a decrease signals economic stagnation. By factoring in capital consumption, NDP offers a clearer view of long-term economic sustainability and critically marks the difference between asset replacement and genuine economic expansion.

> **Article Sources**
>
> 1.  Bureau of Economic Analysis. "[Net Domestic Product](https://www.bea.gov/help/glossary/net-domestic-product-ndp)."