Definition
Gross National Income (GNI) is the total domestic and foreign output claimed by residents of a country, including its goods, services, and income generated by overseas residents. It encompasses the Gross Domestic Product (GDP), plus income earned by a country’s residents from overseas investments, minus income earned within the domestic economy by foreign residents. Simply put, it reflects the total income of a country’s residents.
Key Takeaways
- Gross National Income (GNI) is a measure of a country’s income. It includes all the income earned by a country’s residents and businesses, including any income earned abroad.
- GNI is a useful tool for economists, as it gives a more comprehensive picture of a nation’s total economic activity since it considers both domestic and international activities.
- The GNI per capita, which is the gross national income divided by the population, is often used to compare the economic prosperity or wealth of countries.
Importance
Gross National Income (GNI) is a crucial economic indicator that provides a comprehensive measure of a nation’s total economic activity. It encompasses the aggregate income of residents within a country, including profits from overseas investments, minus income earned within the domestic territory by foreign residents.
GNI is important because it allows economists and policymakers to gauge the overall economic health, economic performance, and standard of living of a country’s population. It’s often used for international comparison and to detect economic trends, thus informing macroeconomic objectives and policy decisions.
Also, it assists international organizations like the World Bank in classifying countries for aid and grants. Hence, GNI serves as a vital tool for economic analysis, planning, and decision-making.
Explanation
Gross National Income, often referred to as GNI, serves a vital purpose in the economic measurement and financial analysis. GNI is a crucial metric because it reflects the total amount of money earned by a nation’s citizens and businesses, no matter where they are in the world.
This means it also encompasses income collected abroad. Understanding the GNI of a country can provide a broader picture of the economic prosperity and performance of a nation’s economy.
GNI is primarily used to compare the economic activities between different countries and over a specific period of time. It gives an idea about the standards of living in a country, allowing international organizations to allocate resources and design policies aptly.
GNI is often used instead of Gross Domestic Product (GDP) as it is a more accurate reflection of a nation’s economic wealth. It is especially useful for countries with significant foreign investments or large numbers of citizens working abroad, as it takes into account these external income streams.
Examples of Gross National Income
China: This Asian powerhouse is one of the examples that showcases the concept of Gross National Income (GNI). According to the World Bank in 2020, China’s GNI was approximately $7 trillion. However, this is not to say that people living in China have the highest income, as GNI also incorporates the income of Chinese enterprises abroad.
United States: The United States is among the countries with the highest GNI in the world. As per the World Bank, the US had a GNI of over $4 trillion in
This includes both domestic production revenue and the income made by American businesses and citizens from overseas investments.India: The GNI of India in 2020 was reported to be around $
3 trillion by the World Bank. The GNI per capita was approximately $2,130 on an annual basis. This figure includes the money earned by India’s businesses operating abroad and at the same time factors in the cost of goods and services provided by foreign companies within the country. In India’s case, a massive population divides the GNI, thereby resulting in a lower GNI per capita despite a high total GNI.
FAQs about Gross National Income
What is Gross National Income?
Gross National Income, often abbreviated as GNI, is the total amount of money earned by a nation’s people and businesses. It includes the wealth produced within a nation’s boundaries as well as the income received from overseas.
How is Gross National Income calculated?
GNI is calculated by taking the sum of a nation’s Gross Domestic Product (GDP) and the net income it receives from other countries, which includes aid and grants, foreign direct investment, and remittances from its citizens living abroad.
What is the difference between GDP and GNI?
Gross Domestic Product (GDP) measures the total value of goods produced and services provided within a country’s borders in a specific time period, while Gross National Income (GNI) includes all of the incomes earned by residents and businesses, including any income earned abroad.
Why is Gross National Income important?
GNI is an important economic performance indicator. It helps to compare the economic performance of different countries, assess the economic welfare of citizens, make international investments, and formulate economic policies.
What are the limitations of Gross National Income?
GNI doesn’t take income distribution into account. It also ignores the non-monetary exchange of goods and services and does not consider the underground economy. Lastly, it does not measure the sustainability of growth.
Related Entrepreneurship Terms
- Per Capita Income
- Net National Income
- Domestic Production
- Depreciation
- Purchasing Power Parity
Sources for More Information
- World Bank: A global development organization that provides financial and technical assistance to developing countries. They have a comprehensive data portal where you can find information on Gross National Income and other economic indicators.
- OECD (Organisation for Economic Co-operation and Development): This organization provides a wealth of statistical information about its member countries which includes GNI among many other economic and social indicators.
- IMF (International Monetary Fund): An organization that provides monetary cooperation and financial stability across the globe. They have a section on their website dedicated to data and statistics that includes information about GNI.
- The Economist: A reputable publication providing in-depth analysis and insights on the world’s economies, including definitions and data related to Gross National Income.
