Domestic Product and National Product

The distinction between the domestic product and national product is base on the origin of production of final goods and services. When production is viewed from the geographical angle, viz., say production on the domestic territory irrespective of the fact whether it is produced by the national of a country or foreign nationals, it is called domestic product. But when account is taken of production by the country, i.e., whatever the residents of a country produce within the domestic territory of country as well as abroad , this is called national product.

The domestic product and national product may not be the same because some production on the domestic territory of a country may be produced by foreign residents and factor services maybe provided by them. Hence, this part of production, though a part of domestic product, legitimately belongs to foreigners and is thus not a part of national product. Conversely, some residents of this country may be supplying factor services(labor, capital etc)to production enterprises in foreign nations and thus having a claim on production outside the country’s own domestic territory. This part of foreign production thus forms a part of country’s national product because the nationals earn income from other countries for the services provided and contributions made to production in foreign countries. Thus, adjustments have to be made in the domestic product; income paid out to foreign nationals for their contribution to domestic product have to be deducted while incomes earned by residents from abroad are to be added to the domestic product to arrive at the estimate of national product.