The Difference Between National Income and Domestic Income
As economic indicators, national income and domestic income are both used to measure the economic growth and prosperity of a country. However, the two terms have distinct meanings and are used in different contexts.
What Is National Income?
National income refers to the total income generated by a country within its borders during a given period of time, usually a year. It includes all the income earned by the citizens and companies of a country, as well as any income earned by foreigners within the country’s borders.
National income is calculated by adding up all the income earned in a country during a year, including salaries, wages, profits, and interest payments. It also includes any government transfer payments, such as social security benefits or welfare payments.
What Is Domestic Income?
Domestic income, on the other hand, is a narrower measure of income that only includes the income earned by residents of a country, regardless of where they were earned. Domestic income is calculated by adding up all the income earned by the residents of a country, including wages, profits, and interest payments.
Domestic income does not take into account any income earned within a country by foreigners, such as foreign corporations or foreign workers. It also does not include any government transfer payments or other non-labor income.
The Importance of National Income and Domestic Income
Both national income and domestic income are important economic indicators that provide insight into a country’s economic performance. National income is a broad measure of a country’s economic activity and serves as an indicator of overall economic growth and development.
Domestic income, however, provides a more accurate measure of the income earned by a country’s residents and can be used to track changes in income inequality or poverty rates. It can also provide a more nuanced understanding of a country’s labor market and overall economic health.
In conclusion, national income and domestic income are two important measures used to gauge a country’s economic performance. While national income encompasses all income generation within a country’s borders, domestic income focuses only on income generated by residents. Understanding the difference between these two measures can help economists and policymakers make informed decisions about economic policy and growth strategies.
Table difference between national income and domestic income
| Category | National Income | Domestic Income |
|---|---|---|
| Definition | Sum of all incomes earned by citizens and companies owned by that country inside and outside its borders | Sum of all incomes earned by citizens and companies owned by that country within its borders |
| Calculation | National Income = Domestic Income + Net Factor Income from Abroad | No calculation needed |
| Scope | Includes income earned by citizens and companies within and outside the country | Includes income earned by citizens and companies only within the country |
| Indicators | Gross National Product (GNP), Gross National Income (GNI) | Gross Domestic Product (GDP) |
| Importance | Measures the economic well-being of a country’s citizens and their contribution to the global economy | Measures the country’s economic performance and growth |