Suppose the Net Domestic Product in a certain sector (e.g. agriculture) is 10 billion. Who enjoys this 10 billion?

Initially, I thought that this 10 billion is the gross income of the farmers. So some of it is paid as taxes while the rest remains with the farmers as net income.

But, I did the math with some real-life data, and found out that the net income of the farmers is much smaller.

So, where does the difference go to?

My conjecture is that the NDP include the income of other workers related to agriculture, e.g. truck drivers, traders and sellers in farmer markets. Is this correct? Or are they counted in a different sector?


In terms of attribution. Recall that Net Domestic Product is the total cost of goods produced minus capital depreciation. In terms of why farmers income is lower, than the NDP, you must subtract out all the costs the farmers have to pay to create that good. So fertalizer cost, reinvestment, wages, interest costs, supplies, insurance etc. etc. all need to be subtracted. Finally, the remainder is split between farmers (in terms of income) and shareholder of corporations that operate in agriculture who recieve a return on thier investment (retained earnings for corporation or dividend payments).

Finally, your farmer income dataset is not an accurate description of the rewards of thier labours. Many farmers are small business owner so, in addition to thier income, they are building equity by making the land more productive and creating a business.

In other words, you are almost looking at the gross margin of a farming business. The NDP is the Revenues (minus capital costs) to get to the farmers net income you have a a substnatial number of other costs to subtract (taxes, amortization, operating expense, interest expense etc.). Finally, the farmers net income is not nescairly the same as the FARM/ FARM BUSINESS' net income so the actual farmers income will be lower still.

  • $\begingroup$ Written while on to go. please accept my apologies for awful grammar and spelling! $\endgroup$ Jun 25 '15 at 17:42

First, let's look at the difference nation-wide between income and domestic product.

National income $Y = GDP –$ capital depreciation $+$ net foreign factor income

$NDP = GDP$ $–$ capital depreciation

Note the difference between the two is the net foreign factor income, that is, the difference between what firms from the country earn outside the country and foreign firms earn in the country.

Depending on your definition of sector $NDP$, you need to add to that net foreign income a "net outsider income", i.e. what firms from other sectors earn in the agricultural sector. Also, the $NDP$ gives you an average of gross earnings for all players in the agricultural sector, that is, including the incomes of anyone considered a member of the sector.

Splitting $NDP$ among sectors is something that is hard to do (does the driver that drives the corn from the producer to the retailer count as service sector? Agricultural sector? Retail sector? What if that driver is actually the farmer? The retailer? ), so the links between average income and $NDP$ for a sector might be a little convoluted...


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