Key Takeaways
- Domestic income measures the total income generated within a country’s borders, including production by foreign-owned companies.
- National income includes income generated by a country’s residents domestically and abroad, excluding production by foreign-owned companies.
- National income gives a broader view of a country’s economic performance than domestic income, accounting for international activities.
What is Domestic Income?
Domestic income is defined as the sum of the income received by all sectors within a state. The sum of profits, wages, and taxes is included in the domestic income. Domestic income means the income earned by a state from the abovementioned factors of production. It is the summation of factor incomes earned by all production units present within the territory of a country.
If the country has a closed economy, the domestic income becomes equal to the national income and is the same as no foreign income earned. The matter of who generated the income is not essential; the sum of all income from production units within the country is included. Domestic income is represented as National Domestic Product (NDP).
Domestic income includes the income earned by the residents and non-residents of a country as long as the income is generated within the country’s territory. The income earned by foreign banks and companies operating in the state is included while calculating the domestic income. It is calculated through various surveys and statistics. The domestic product and domestic income are the same.
What is National Income?
It is defined as the total value of services and goods generated in a country during a financial year. Income from economic tasks is critical to the economy’s progress. It includes income from both the public and private sectors. It is measured using Gross National Product (GNP) and Gross Domestic Product (GDP).
There are two types of national income definitions one is traditional, and the other one is modern. According to Marshall, in traditional income, “the capital and labor of the country are acting on its natural resources generated annually a certain net aggregate of commodities, material and immaterial including the services of all kinds. The actual net annual revenue or income of the country.” While in the modern definition, to calculate GNP, we need to collect the data from all productive activities like wood, minerals, and agricultural produce. GDP is the value of all services and goods produced and served in a country annually.
It gives awareness of the overall level of economic activity and the ability of the country to sustain its importance. Therefore it is treated as an essential pointer of a country’s finance. Gross domestic product per capita and gross national income per capita are also reminiscent of economic indicators assessed by national income. It plays a vital role in government policy-making.
Difference Between Domestic Income and National Income
- Domestic income is the total income earned within a country’s borders, whereas national income is the total cost of goods and services produced within a country over a specific period.
- Domestic income regards the producer’s nationality, whereas national income does not regard the producer’s nationality.
- Domestic income is measured using various surveys and statistical data, whereas national income is calculated using GDP and GNP.
- Domestic income measures the overall level of income and wealth within a country, whereas national income measures a country’s economic performance, standard of living, and ability to sustain its population.
- Domestic income includes wages, salaries, profits, rent, and other forms, whereas national income includes all goods and services produced.
Comparison Between Domestic Income and National Income
| Parameters of Comparison | Domestic Income | National Income |
|---|---|---|
| Scope | Income Earned within Borders | Goods and Services |
| Measurement | Survey, Statistics | GDP, GNP |
| Purpose | To Measure Overall Income and Wealth | To Measures Economic Performance |
| Components | Wages, Salaries, Profits, Rents | Agriculture & Services Sectors |
| Indicator | Income Earned by Residents | Economic Health and Living Standards of a Country |
- https://www.sciencedirect.com/science/article/pii/S0022199603000977
- https://www.nber.org/system/files/chapters/c2258/c2258.pdf
Last Updated : 29 July, 2023
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Chara Yadav holds MBA in Finance. Her goal is to simplify finance-related topics. She has worked in finance for about 25 years. She has held multiple finance and banking classes for business schools and communities. Read more at her bio page.
