Domestic Territory of a Country:By domestic territory, a layman means political frontiers of a country but in national accounting it is used in a wider sense. Domestic territory, as used in national accounting, has a special meaning and is much bigger than the political frontiers of a country. According to United Nation, “Economic territory is the geographical territory administered by a government within which persons, goods and capital circulate freely.”Clearly, freedom of circulation of persons, goods and capital is the basic criterion of economic territory for including in it. Thus, those parts of political frontiers of a country whose government does not enjoy these freedoms (e.g. embassies) are deemed to be outside the economic territory. (Remember that income generated within domestic territory during a year is called domestic income.) Mind, embassies are not included in domestic territory as they are not administered by the government of the country in which they are located. Again note that domestic territory is also called economic territory.
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