GNP and GDP both reflect an economy’s national output and income. The primary distinction is that GNP (Gross National Product) includes net foreign income receipts.
- GDP (Gross Domestic Product) is a measure of a country’s production (national income + national output + national expenditure).
- GDP + net property income from abroad = GNP (Gross National Product). Dividends, interest, and profit are all included in this net income from abroad.
- The value of all goods and services produced by nationals whether in the country or not is included in GNI (Gross National Income).
Example of how GNP is different to GDP
If a Japanese multinational manufactures automobiles in the United Kingdom, this manufacturing will be counted as part of the country’s GDP. However, if a Japanese company returns 50 million in profits back to its stockholders in Japan, this profit outflow is deducted from GNP. The profit that is going back to Japan does not assist UK citizens.
If a UK corporation makes a profit from foreign insurance companies and distributes that profit to UK citizens, the net income from overseas assets is added to UK GDP.
It’s worth noting that if a Japanese company invests in the UK, it will still result in higher GNP because certain domestic workers will be paid more. GNP, on the other hand, will not grow at the same rate as GDP.
- GNP and GDP will be extremely similar if a country’s inflows and outflows of revenue from assets are identical.
- GNP, on the other hand, will be lower than GDP if a country has many multinationals that repatriate profits from local output.
Ireland, for example, has seen tremendous international investment. As a result, the profits of these international corporations result in a net outflow of income for Ireland. As a result, Ireland’s GNP is smaller than its GDP.
GNI
GNI (Gross National Income) is calculated in the same way as GNP. GNI is defined by the World Bank as
“The sum of all resident producers’ value added plus any product taxes (minus subsidies) not included in the valuation of output, plus net receipts of primary income (compensation of employees and property income) from outside” (Source: World Bank)
What is the relationship between GNP and GDP?
GNP stands for Gross National Product, which is calculated as Consumption + Investment + Government + X (net exports) + Z. (net income earned by domestic residents from overseas investments minus net income earned by foreign residents from domestic investments). GNP is calculated using the same formula as GDP.
GNP is calculated by subtracting GDP from GDP.
Gross National Product estimates the value of products and services based on the place of ownership, as opposed to, which takes the value of goods and services based on the geographical site of production. It is calculated as the value of a country’s GDP plus any income earned by citizens from overseas investments, minus income earned by foreign residents inside the country. Because these entries are included in the value of the final products and services, GNP eliminates the value of any intermediary commodities to avoid double counting.
Can GDP and GNP be equal?
To put it another way, GNP is a subset of GDP. While GDP confines its economic analysis to the country’s physical borders, GNP broadens it to include the net abroad economic activity carried out by its citizens. GNP is a measure of how much a country’s citizens contribute to its economy.
What contribution does GDP make to GNP?
GNP is computed by summing consumption, government spending, corporate capital spending, net exports (exports minus imports), and net income from foreign investments by domestic residents and enterprises.
Why is Gross National Product calculated?
GNP’s Importance Economists consider GNP to be an essential economic indicator. They utilize it to come up with answers to economic problems like poverty and inflation. When income is determined per person, regardless of location, GNP becomes a far more trustworthy indicator than GDP.
How do you figure out actual GDP?
To calculate Real GNP, first compute nominal GNP by adding foreign earnings capital gains to GDP, then factor in inflation by dividing the total by the Consumer Price Index and multiplying by 100.
Key Points
- GDP is calculated by adding national income and subtracting depreciation, taxes, and subsidies.
- GDP can be calculated in two methods, both of which yield the same answer in theory.
What is the difference between GDP, GNP, and GDP per capita?
The gross national product (GNP) is defined as the entire worth of all revenue earned by citizens of a country, regardless of source. The total value of production realized by resident producers in an economic territory, on the other hand, is referred to as GDP.
Is it the same as GDP?
Gross National Product (GNP) is an economic figure that equals GDP plus any money earned by locals from overseas investments minus income earned by overseas residents inside the domestic economy, i.e. net factor income from abroad (NFIA).