Glossary of terms for Development Management

N

Note: Within each definition, terms for which there are definitions elsewhere are highlighted.

The net national income at factor cost is that part of the total product not retained by business as the equivalent for the replacement of absolute means of production and not transferred to the State as sales tax (indirect taxes) before it becomes somebody's income (but not resulting from government subsidies).

The national income is the sum of all income received in a given year; it represents the sum of all factor payments of domestic economic units (private persons or businesses) involved in the production process. This is equivalent to the sum of all income in the form of wages, salaries, interest, profits and rent (as gross income, i.e. prior to deduction of the tax applicable to the individual income type), irrespective of whether it is retained in the business or, for instance, distributed to the shareholding private households as dividends.

National Income Accounts (NIA)

A macro-economic model with a variety of concepts comprising all those parameters by which a country's (or a region's) level of economic activity, the level of wealth of its population, its economic growth, the composition of its production and the distribution and utilisation of its income are normally measured. The amounts covered by the NIA refer to the period of one year. Indicators (such as national income, gross domestic product (GDP) etc.) are used as a measure of success of a country's economy and economic policy. It is important to know their significance and their limits within the framework of an analysis for development (within the economic dimension). The NIA is based on a circular-flow model. The economy is divided into two poles: production (business) and consumption (households). In the simplified basic model the entire output flows from the businesses to the households, which in their turn supply the businesses with the labour needed to achieve this output. In capitalist economies, characterised by private ownership of means of production, the capital used to finance the production process also appears as something supplied (factor input) by private households to businesses (as it is private persons who supply the corporate capital). To apply the parameters of the NIA as a measure of economic success is problematic.

National product

The national product represents that value accruing to residents from production processes, irrespective of where the goods or services are produced. The production location is not decisive but the (permanent) abode of these receiving income from the production processes. Profits of national entrepreneurs abroad and salaries obtained abroad by labour resident in a nation are therefore included in the national product, the income of foreign labour and the profits of foreign companies are not (exactly the opposite applies in the case of the domestic product). The differentiation between domestic and national product is particularly important when considering developing countries, where large production sectors are in the hand of foreign businesses. The domestic product, which includes the investment income of these companies, often far exceeds the national product accruing to the inhabitants of the country in question. This makes measurements of wealth and growth on the basis of gross domestic product (GDP) in these countries especially difficult.

see also Gross national product (GNP)

Natural resource management

see Resource management

Needs

see Basic needs

Neo-classic economic theory

Neo-classic economic theory dates from the turn of the century and, although highly controversial, remains the dominant school of thought in economics. Part of modernisation and growth theories, it endeavours to analyse the effects of the market mechanism on utilisation of resources, distribution of income and economic growth in general. Such effects are formulated as models derived from a functioning market mechanism. The theory concludes that optimum resource use and a fair distribution of income and economic growth depends on the market mechanism functioning.

The neo-classical school explains continuous economic development differences in terms of the failure of the compensatory market mechanism to function. In other words, the markets of peripheral economic regions are not sufficiently integrated into the growth regions ("regional dualism" occurs). An example of neo-classic reasoning is: if markets function, the labour force will migrate from peripheral low income regions (=p) to central high income regions (=c); by out-migration, labour resources in p become scarce, which results in an increase in remuneration, while in c a surplus of labour force develops which results in a decrease of remuneration. The effect is an assimilation of incomes; respective effects are reached by the migration of capital from c to p in order to make use of the low wage-level there.

Net domestic product / net national product

The difference between gross and net refers to the question: is that part of production representing the depreciation of means of production (which serves to replace worn out means of production, so called reinvestments) included (=gross) or not (=net)? The differences is of no importance in assessing production levels and economic strength. If it comes to income levels and wealth however, net values are considered more suitable as depreciation is the part of business income which equals the cost of using means of production.

see also Gross domestic product, Gross national product