National versus Domestic Concept
1.22 The discussion so far did not make any distinction between national or
domestic income. The concept of national versus domestic arises because of
the fact that the economy is not closed in the sense that it has transactions
with the rest of the world in the form of exports and imports, gifts, loans, factor
income flows etc.
1.23 National income or product is that income or product which accrues to
the economic agents who are resident of the country. Most of the national
income is derived from economic activity within the country. But some income
arises due to the activities of the residents outside the country. Similarly,
some of the product or income arising in the country may be due to the
activities of the non-residents. The difference between these two flows is
referred to as net factor income from abroad.
1.24 The measure of production arising out of the activities of economic
agents within the country is termed as domestic product even if a part of that
income accrues to non-residents. When adjustments are made to this
product by deducting the income of non-residents within the country and
adding the income of residents abroad, the national product is obtained.
factor income from abroad and in a closed economy national and domestic
incomes are synonymous.
1.25 If the desire is to measure the activity within the country, interest is
centered on the location of the factors employed in production. The measure
of output of factors located in the country irrespective of ownership will be the
domestic product. The importance of the distinction between location and
ownership lies in the simple fact that flows of factor income directed out of the
country produces benefits elsewhere. The receivers of that income will be
unlikely to spend it on the purchase of the output of the country from which it
came. The money will be spent in the country of the residence of the
receivers and it is to these countries that the benefits will accrue. In some
countries these flows are relatively unimportant. In some other countries
where a large part of the capital stock is foreign owned these flows may be
relatively large. In such cases a significant part of domestic income might be
part of national income of another country. In many countries there are also
important examples of international flows of wage payments since migrant
labour is very important in these countries.
1.26 The relation of the domestic to national income is perfectly straight
forward in principle; the former is merely adjusted for net factor income from
abroad.[Reproduced from CSO Publication]
1.22 The discussion so far did not make any distinction between national or
domestic income. The concept of national versus domestic arises because of
the fact that the economy is not closed in the sense that it has transactions
with the rest of the world in the form of exports and imports, gifts, loans, factor
income flows etc.
1.23 National income or product is that income or product which accrues to
the economic agents who are resident of the country. Most of the national
income is derived from economic activity within the country. But some income
arises due to the activities of the residents outside the country. Similarly,
some of the product or income arising in the country may be due to the
activities of the non-residents. The difference between these two flows is
referred to as net factor income from abroad.
1.24 The measure of production arising out of the activities of economic
agents within the country is termed as domestic product even if a part of that
income accrues to non-residents. When adjustments are made to this
product by deducting the income of non-residents within the country and
adding the income of residents abroad, the national product is obtained.
factor income from abroad and in a closed economy national and domestic
incomes are synonymous.
1.25 If the desire is to measure the activity within the country, interest is
centered on the location of the factors employed in production. The measure
of output of factors located in the country irrespective of ownership will be the
domestic product. The importance of the distinction between location and
ownership lies in the simple fact that flows of factor income directed out of the
country produces benefits elsewhere. The receivers of that income will be
unlikely to spend it on the purchase of the output of the country from which it
came. The money will be spent in the country of the residence of the
receivers and it is to these countries that the benefits will accrue. In some
countries these flows are relatively unimportant. In some other countries
where a large part of the capital stock is foreign owned these flows may be
relatively large. In such cases a significant part of domestic income might be
part of national income of another country. In many countries there are also
important examples of international flows of wage payments since migrant
labour is very important in these countries.
1.26 The relation of the domestic to national income is perfectly straight
forward in principle; the former is merely adjusted for net factor income from
abroad.[Reproduced from CSO Publication]
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