Definition
Gross Domestic Product (GDP) refers to the total value of goods produced and services provided within a country’s borders in a specific time period. Gross National Product (GNP), on the other hand, refers to the total value of goods produced and services provided by a country’s residents, both domestically and internationally, within the same time period. So, GDP measures economic activity within the country, while GNP measures economic activity of the country’s residents.
Key Takeaways
- GDP, or Gross Domestic Product, measures the total value of all goods and services produced within a country’s borders, regardless of who owns the factors of production. It is usually used to provide a snapshot of a country’s economic health.
- GNP, or Gross National Product, on the other hand, measures the value of all goods and services produced by a country’s residents, irrespective of their location. This includes their offshore operations and income from foreign investments.
- The main difference between the two is the factor of domestic vs international production. While GDP focuses on where the production is happening, GNP focuses on who is doing the production. So, GDP can sometimes give a more accurate representation of a country’s domestic economy, and GNP can indicate how its nationals are contributing to the economy both at home and abroad.
Importance
The finance terms “Gross Domestic Product” (GDP) and “Gross National Product” (GNP) are important economic indicators that help understand a country’s economic performance.
GDP measures the value of goods and services produced within a country’s geographic boundaries, reflecting the strength of its local economy and productivity levels.
On the other hand, GNP gauges a country’s total economic output, including international activities conducted by its citizens or corporations.
Therefore, comparing GDP and GNP provides insights into a nation’s local versus international economic involvement, indicating how much of the country’s productivity is homegrown versus international.
Understanding both these metrics, thus, offers a comprehensive view of a nation’s economy and can guide policy-setting, economic forecasting, and investment decisions.
Explanation
The terms GDP (Gross Domestic Product) and GNP (Gross National Product) are vital in evaluating the economic performance of a country and its standard of living. The GDP measures the total value of all goods and services produced within a country in a specific time period. It is one of the primary indicators used to gauge the health of a country’s economy.
It represents the size of the economy and is particularly used by the government and economists to make policies, analyze economic performance, compare against other economies, and forecast future growth. Overall, it helps provide a broad view of the economy’s overall health. On the other hand, GNP includes the value of goods and services produced by its citizens, regardless of their location.
While GDP focuses on domestic production, GNP looks at the contributions of the country’s residents to the economy, irrespective of whether they are within the country’s borders or not. It’s an economic statistic that includes GDP, plus any income earned by residents from overseas investments, minus income earned within the domestic economy by foreign residents. Therefore, it reflects the income of a country’s residents and the productivity of its nationals, hence is often used to assess how much of a country’s economic growth is benefiting its citizens.
Examples of GDP vs GNP
United States Economy: As of 2020, the United States had a GDP of about $4 trillion, and a GNP of around $
675 trillion. The significant gap between the GDP and GNP indicates a high level of income from overseas investments. The U.S. corporations make a huge revenue from their operations abroad contributing to GNP.Indian Economy: According to data from the World Bank, as of 2020 India had a GDP of approximately $
62 trillion and a GNP of $72 trillion. The relatively small difference between the amounts indicates that India does not generate a vast majority of its national income from overseas investments, hence the closer figures of GDP and GNP.
The economy of Ireland: Ireland is a unique case where GNP is significantly lower than GDP, due to the large number of foreign companies operating in the country. In 2019, Ireland’s GDP was about $388 billion, while its GNP was about $227 billion. This discrepancy is because GDP accounts for all the economic activities within Ireland’s geographic boundaries including foreign multinational corporations, but GNP only considers income generated by Irish residents, regardless of geographic location. Thus, a large portion of Ireland’s GDP reveals income that is actually owned by foreign businesses.
Frequently Asked Questions: GDP vs GNP
1. What is GDP?
Gross Domestic Product (GDP) is a measurement of the monetary value of all goods and services produced within a country’s borders in a specific time period.
2. What is GNP?
Gross National Product (GNP) is a measurement of the value of all goods and services produced by the residents of a country, regardless of whether they are living within the country or abroad.
3. What is the key difference between GDP and GNP?
The key difference between GDP and GNP lies in what each figure counts. GDP counts the production within a nation’s borders, while GNP counts the production of a nation’s citizens, irrespective of their location.
4. How is GDP calculated?
GDP is calculated as the sum of all the goods and services produced within a country’s borders regardless of who owns the assets or the nationality of the people producing the output.
5. How is GNP calculated?
GNP is calculated as GDP, plus net receipts from abroad, which include compensation of employees, property income, and net taxes.
6. Which is a better economic indicator GDP or GNP?
Both GDP & GNP are useful; however, their effectiveness depends on the situation. GDP is helpful when considering local economic activity and performances while GNP is useful when considering the economic strength of a nation’s residents.
Related Entrepreneurship Terms
- Gross Domestic Product (GDP)
- Gross National Product (GNP)
- Net exports
- Domestic production
- Overseas production
Sources for More Information
- International Monetary Fund (IMF): The IMF provides finance-related resources including topics such as GDP and GNP.
- World Bank: World Bank maintains economic data and resources related to GDP and GNP among other subjects.
- Investopedia: Investopedia offers a wide variety of finance and investment information, including details about GDP and GNP.
- Bureau of Economic Analysis (BEA): BEA delivers updated statistics for U.S. economy, including GDP and GNP data.
