Concept of National product

Domestic Product is a measure of production activity of production units located in the economic territory of a country. Both residents and non-residents provide factor services to these units. As such the income generated in these units is shared by both the residents and non-residents. To get the contribution of only residents we have to deduct from domestic product, the factor payments made to the non-residents.The residents, in addition to their services to the production units located in the economic territory of a country, also provide factor services to production units outside this economic territory i.e., to the rest of the world. In return for these services they get factor payments (factor income) from the rest of the world.

In brief, residents get factor payments, both from economic territory units and foreign territory units. The sum of both is termed as national product. It is found out in the following manner:-National Product = Domestic product - Factor income paid to the rest of the world + Factor income received from the rest of the worldORNational Product = Domestic product + Net factor income received from abroad.