This article will help you to learn about the difference between domestic income and national income of a country.
Difference between Domestic Income and National Income of a Country
The income of a country may be stated in the context of (i) its territory and (ii) its normal residents.
“It is the sum total of factor incomes generated by all the production units located within domestic territory of a country during an accounting year.”
The point to be noted is that factor incomes should be generated within the domestic territory of a country irrespective of the fact whether producers are normal residents (citizens) or non-residents (i.e., foreigners). We know that within domestic territory, both nationals and non-nationals reside and domestic income includes factor incomes of all the people-nationals and non-nationals-residing within domestic territory.
For example many non-residential companies and foreign banks operate within domestic (economic) territory of India. Income generated by them is included in India’s domestic income. Thus domestic income is a territorial concept since it is defined with reference to domestic territory. Clearly, domestic income does not include factor income earned from abroad.
“It is the sum total of factor incomes earned (generated) by normal residents of a country during an accounting year.”
The point to be noted is that national income includes factor incomes earned by normal residents within and outside the country. It is an economic concept since it is defined with reference to productive efforts of normal residents.
Simply put, income generated by residents and non-residents (i.e., foreigners) within domestic territory of a country is called domestic income and income generated by normal residents within and outside the country is called national income. The difference between the two is net factor income from abroad which is added to domestic income to get national income.
National Income = Domestic Income + Net factor income from abroad