Understanding the Difference between GNP and GDP
In the field of economics, Gross National Product (GNP) and Gross Domestic Product (GDP) are among the most common and important indicators used to assess the economic growth and development of a country. Both these terms refer to the monetary value of all goods and services produced within a country, but they differ in certain ways.
Gross National Product (GNP)
GNP is an economic term that represents the total monetary value of goods and services produced by all the residents and entities of a country – including those living abroad – in a particular period, usually a year. It measures the income earned by a country’s nationals, regardless of their location.
For instance, if a country has a factory located in another country and generates income from that industry, that income will still be calculated as part of the country’s GNP. Similarly, if a resident of the country has earned an income by working abroad, this income will also be included in the country’s GNP.
Gross Domestic Product (GDP)
GDP, on the other hand, is an economic measure that provides a broader view of a country’s economic activity than GNP. It measures the total monetary value of goods and services produced and rendered within a country’s geographic boundaries, irrespective of whether the production is carried out by foreign-owned businesses or nationals. In essence, GDP provides a measure of a country’s domestic production and consumption, which includes household consumption, government spending, investment, and exports minus imports.
Differences between GNP and GDP
The main difference between GNP and GDP is that GNP takes into account the income generated by a country’s residents, businesses, and entities located abroad. In comparison, GDP only considers the goods and services produced within a country’s geographic borders, whether by foreign or local entities. The two measures will differ if there is a difference between the number of nationals of a country working abroad and foreign nationals working in the country.
Another significant difference between GNP and GDP is that GNP takes into consideration the factor income, while GDP only includes production income. For example, the income earned by foreign nationals working in a different country will be included in the GNP but won’t be considered under GDP.
In conclusion, GNP and GDP are both essential measures that reflect the economic activity of a country. However, they differ in terms of the incorporation of external factors, such as people and businesses located abroad. Knowing the differences between these two measures is important for measuring economic growth and development and economic policy-making.
Table difference between gnp and gdp
| GNP (Gross National Product) | GDP (Gross Domestic Product) | |
|---|---|---|
| Definition | The total value of final goods and services produced by a country’s residents, regardless of their location, in a given time period (usually a year) | The total value of final goods and services produced within a country’s borders, regardless of the nationalities of the producers, in a given time period (usually a year) |
| Calculation | GDP + net income from abroad (income earned by domestic residents from their investments overseas, minus income earned by foreign residents from their investments in the domestic economy) | Total consumption + total investment + government spending + net exports (exports minus imports) |
| Focus | Measures the economic output of a country’s citizens, regardless of where they live and work | Measures the economic output of a country’s domestic economy, regardless of who owns the producing entities and where they are headquartered |
| Usefulness | Useful for understanding the economic welfare of a country’s citizens, and for comparing the economic performance of countries with different degrees of international investment and activity | Useful for analyzing the size and growth of a country’s domestic economy, and for comparing the economic performance of countries with similar levels of international investment and activity |