What is gnp and how does it differ from gdp

Where GDP looks at the value of goods and services produced within a country's borders, GNP is the market value of goods and services produced by all citizens of a country—both domestically and abroad. It factors in citizenship but overlooks location. For that reason, it's important to note that GNP does not include the output of foreign residents. For example, a Canadian NFL player who sends his income home to Canada, or a German investor who transfers the dividend income generated from her shareholdings to Germany, will both be excluded from GNP.

On the other hand, if a U. GNP can be calculated by adding consumption, government spending, capital spending by businesses, and net exports exports minus imports and net income by domestic residents and businesses from overseas investments.

This figure is then subtracted from the net income earned by foreign residents and businesses from domestic investment. A quick look at the absolute GDP and GNP numbers of a particular country over the past two years indicate they mostly move in sync. There is a nominal difference between GDP and GNP figures of a particular country depending upon how the economic activities of the nation are spread across domestically or globally.

For instance, many American businesses, entrepreneurs, service providers, and individuals who operate across the globe have helped the nation secure a positive net inflow from the overseas economic activities and assets.

This bumps up U. Greece, which was recently going through a long-running financial problem owing to a debt crisis, also has higher GNP than GDP. Amid the economic crisis in Greece, not many foreigners may be operating in a country which may limit its GDP. Other nations like China , the U. This indicates these nations are seeing a net overall outflow from the country.

Citizens and businesses of these countries operating overseas are generating lesser income compared to the income generated by the foreign citizens and businesses operating in these countries. It can be inferred that irrespective of one figure being higher than the other, the difference is minimal. International Monetary Fund. CEIC Data. Your Privacy Rights. To change or withdraw your consent choices for Investopedia.

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This cookie is set by the provider Getsitecontrol. This cookie is provided by Tribalfusion. This cookie is used to store information of how a user behaves on multiple websites. For salary that is earned by an Indian employee engaged in Malaysian consulate in India, the income will be considered as national income considering he or she is an Indian resident.

However, the same shall not fall under domestic income given that Malaysian consulate is not a part of Indian domestic territory. In the instance of profits that are earned by a foreign bank branch in India will be covered under domestic income as those are generated within the domestic territory. However, on account of the factor income being paid overseas, it will not fall under national income. It may consider the newly-produced services and goods as well only when it is generated within country borders.

The GDP is calculated in the following way -. GNP categorically excludes the income which is generated by foreigners who are only residing within the territory of the country. There are various ways of calculating GNP numbers. The expenditure approach determines aggregate demand, or Gross National Expenditure, by summing consumption, investment, government expenditure and net exports. The income approach and the closely related output approach sum wages, rents,interest, profits, non income charges, and net foreign factor income earned.

The three methods yield the same result because total expenditures on goods and services GNE is equal to the value of goods and services produced GNP which is equal to the total income paid to the factors that produced the goods and services GNI. GDP and GNP figures are both calculated on a per capita basis to give a portrait of a country's economic development. A region's GDP is one of the ways of measuring the size of its local economy whereas the GNP measures the overall economic strength of a country.

These figures can also be used to analyze the distribution of wealth throughout a society, or the average purchasing power of an individual in the country etc. The exact relationship will depend on the nationality status of the company doing the export or import. GDP is perhaps the most widely used metric to measure the health of economies.

But some economists have argued that GDP is a flawed metric because it does not measure the economic well being of society. For example, it's possible that GDP is going up but median income going down and poverty rate increasing.