Information Note: NNI: Ireland’s National Accounts in the Context of Globalisation 1995-2022

CSO publication, 24 November 2023, 11am

NNI: Ireland’s National Accounts in the Context of Globalisation

NNI is a useful measure of the domestic Irish economy because it excludes the globalisation effects associated with reinvested earnings and depreciation, while these are included in GDP.

NNI is more useful than other aggregate measures (e.g. GNI* and MFDD) as a comparative measure because other countries publish it, while these measures are only published by Ireland.

1. Why use NNI?

Net National Income (NNI) is a key macroeconomic indicator of domestic economic performance in Ireland. NNI is Gross Domestic Product (GDP) minus:

1) Net Factor Income (NFI) with the rest of the world

2) the Consumption of Fixed Capital (depreciation)

3) net subsidies from abroad. Following these deductions, NNI largely consists of domestic profits, compensation of employees and taxes on goods.

The graph below displays annual percentage changes in Irish NNI at Constant Market Prices, alongside NNI recorded in selected OECD economies (and the European Union) between 2000 and 2022.

2. Net Factor Income and Depreciation

NNI at Current Market Prices is calculated using the income method, meaning it is calculated using corporate profits, wages and salaries, taxes (on goods) and subsidies. While GDP includes profits that are generated by all firms, NNI excludes outflows of profits of foreign-owned MNEs located in Ireland. This is done by deducting Net Factor Income from the rest of the world (NFI) from GDP (this being the difference between profits and wages paid abroad and those profits and wages paid domestically). Profits that are paid abroad from Ireland are substantially larger than profits paid by Irish firms from abroad to Ireland, meaning that Irish NFI is negative. Profits that are made by MNEs in Ireland (and not paid out as dividends) are counted as being paid abroad. This is because the funds in question are owned by foreign investors, despite them being made in Ireland for taxation purposes. NFI is a deduction from GDP in arriving at the final NNI amount for a given reference period. In this sense, NNI provides a more meaningful picture of domestic economic performance, as reinvested earnings being paid abroad do not necessarily influence the Irish economy in a substantive way. Instead, NNI focuses on profits that are made in and accruing to permanent residents of Ireland.

Other macroeconomic indicators – namely, Gross National Income (GNI) and modified Gross National Income (GNI*) – also exclude net factor income. To briefly illustrate the differences between these measures, please see the explanatory table below.

Table 1: Explanatory Table of Aggregate Measures
	GDP	GNI	GNI*	MFDD1	NNI
Subtracts Net Factor Income	No	Yes	Yes	N/A(Calculated using Expenditure)	Yes
Subtracts Depreciation	No	No	Yes (IP, R&D and Leased Aircraft Only)	N/A	Yes
Subtracts PLC Factor Income	N/A	No	Yes	N/A	No
Internationally Comparable	Yes	Yes	No	No	Yes
1 MFDD: Modified Final Domestic Demand. An explanation of this measure is included in Section 3.

A table summarising the statistical and analytical uses of each high-level aggregate measure is included below.

Table 2: Key Statistical/Analytical Uses
High Level Aggregate	Key Statistical/Analytical Uses
MFDD	Part of/Partial economy measure useful as a Demand side indicator of domestic economic activity.
GDP	At Current Prices, GDP is required under EU Fiscal rules for use as a denominator for the compilation of Government Debt & Deficit metrics.
GNI	A key element used for determining EU Budgetary Contributions (with GNI and Gross National Product [GNP] being highly correlated headline measures for Ireland).
Modified GNI (GNI*)	Nationally designed Whole-of-Economy measure that excludes the influence of MNEs on the Irish economy.
	Only depreciation on R&D Service Imports and Trade in IP and depreciation on leased aircraft are deducted.
NNI	Whole-of-economy measure that excludes globalisation effects associated with Reinvested Earnings (RIE) and Depreciation on all Fixed Capital Assets regardless of asset class, that has the benefit of international comparability under the System of National Accounts (SNA) accounting rules.

The levels of GDP, GNI, GNI* and NNI are graphed below where the difference between GDP and GNI may be observed to illustrate the significance of Net Factor Income.

3. NNI, GNI* OR MFDD?

NNI, GNI* and MFDD are all valid indicators of domestic economic activity in Ireland. How are they different? NNI and GNI* display a high degree of correlation over time, despite two methodological differences between them. The first difference is that NNI accounts for depreciation on all fixed assets, while GNI* only accounts for depreciation on leased aircraft and IP. This is because GNI* is a measure specifically designed to account for globalisation effects on the Irish economy, while NNI is designed to capture domestic economic performance. The second difference is that NNI includes net factor income of redomiciled Public Limited Companies (PLCs), while GNI* does not. The magnitude of this adjustment is graphed in Figure 7 in the annex.

Real Modified Final Domestic Demand (MFDD) is another indicator of Irish domestic economic performance. Its calculation is different from GNI* and NNI, in that it is calculated using expenditure. Specifically, personal consumption expenditure, government expenditure and capital expenditure are used. Similar to GNI*, MFDD excludes capital expenditure (investment) on R&D, IP and leased aircraft, but includes capital investment in other categories. This is done to account for globalisation effects. While the Real MFDD and Real NNI do not always necessarily move in tandem (and even directionally their annual percentage changes can be of an opposite sign between two given reference years), they have exhibited strong positive correlation between 1995 and 2022.

If GNI* and MFDD both account for globalisation effects, why use NNI? The main advantage that NNI offers is that it is internationally comparable. While GNI* and MFDD provide more tailor-made measures of domestic economic performance for a highly globalised economy, they are only published by Ireland. NNI is published by many countries, making it a useful measure for comparison with other economies.

International organisations recognise the importance of the adoption of net measures. The System of National Accounts (SNA) contains the international standards agreed upon for the compilation of economic measures. The SNA is due to be updated in 2025. Leading up to this, the importance of the use of high-level net aggregate measures in national accounts has been highlighted by the Intersecretariat Working Group on National Accounts (ISWGNA) under the auspices of the United Nations (see this guidance note). The promotion of NNI as a measure of Irish economic activity is therefore consistent with the harmonised international statistical framework, adding to the justification of its use.

The publication of NNI as a headline economic indicator across countries enriches the international statistical framework. If policymakers and researchers wish to compare the domestic economic performance of a specific country with that of other countries (or vice versa), then all countries concerned must gather and publish the requisite data with methodological consistency. In addition, increasing the frequency of NNI collection and publication (e.g. from yearly to quarterly) would allow policymakers and economic researchers to avail of more real-time economic information and improve analytical findings.

Annex

A: Measurement Differences: OECD and CSO

The Organisation of Economic Cooperation and Development (OECD) publish annual NNI figures for all OECD economies (See Fig 1). It should be noted that the calculation methods used by the OECD and those used by the CSO for Real NNI are different. Below, the annual growth rate of NNI in Ireland between 1995 and 2022 are included, with trends based on the CSO and OECD calculations being reported.

B: GNI* Decomposition

CSO NNI data at Current Market Prices are available at: 

• ANA 2022 Table 1.2 Main Aggregates, 2017-2022
• ANA 2022 Table 3.1 Net Value Added at Factor Cost and Net National Income at Market Prices (years 2017 to 2022): Long time series 1995 to 2022 are available on PxStat Table NA003 Net Value Added at Factor Cost and Net National Income at Market Prices https://data.cso.ie/table/NA003
• ANA 2022 Table 3.4 Gross Value Added at Basic Prices by Sector of Origin and Gross and Net National Income at Current Market Prices (years 2017 to 2022): Long time series 1995 to 2022 are available on PxStat Table NA005 Gross Value Added at Basic Prices by Sector of Origin and Gross and Net National Income at Current Market Prices: https://data.cso.ie/table/NA005
• ANA 2022 Table 6.1 Output, Intermediate Consumption and Gross Value Added at Basic Prices by Sector of Origin and Gross and Net National Income at Current Market Prices (years 2017 to 2022): Long time series 1995 to 2022 are available on PxStat Table NA005 Gross Value Added at Basic Prices by Sector of Origin and Gross and Net National Income at Current Market Prices: https://data.cso.ie/table/NA005
• ANA 2022 Table 8.1 Expenditure on Gross and Net National Income at Current Market Prices (years 2017 to 2022):  Long time series 1995 to 2022 are available on PxStat Table NA007 Expenditure on Gross and Net National Income at Current Market Prices: https://data.cso.ie/table/NA007

CSO NNI data at Chain Linked Constant Prices are available at:

• ANA 2022 Table 1.2 Main Aggregates, 2017-2022
• ANA 2022 Table 3.6 Gross Value Added at Constant Basic Prices by Sector of Origin and Gross and Net National Income at Constant Market Prices (chain linked annually and referenced to year 2021) (years 2017 to 2022):  Long time series 1995 to 2022 are available on PxStat Table NA006 Gross Value Added at Constant Basic Prices by Sector of Origin and Gross and Net National Income at Constant Market Prices: https://data.cso.ie/table/NA006
• ANA 2022 Table 6.2 Output, Intermediate Consumption and Gross Value Added at Constant Basic Prices by Sector of Origin and Gross and Net National Income at Constant Market Prices (chain linked annually and referenced to year 2021) (years 2017 to 2022): 
• ANA 2022 Table 8.3 Expenditure on Gross and Net National Income at Constant Market Prices (chain linked annually and referenced to year 2021) (years 2017 to 2022): Long time series 1995 to 2022 are available on PxStat Table NA008 Expenditure on Gross and Net National Income at Constant Market Prices: https://data.cso.ie/table/NA008

OECD NNI data at Current Prices and Chain Linked Constant Prices are available on OECD.Stat database:

• Stat National Accounts\Annual National Accounts\Main Aggregates\2. Disposable Income and Net Lending - Net Borrowing\Table 2 – Disposable Income and Net Lending - Net Borrowing: