Difference Between GDP and GNP
GDP and GNP are two important measures to calculate a country’s economy. They represent the total market value of all goods and services produced in a given period, usually a year. However, their calculation is slightly different. GDP measures the economic output of the finished domestic goods and services produced within a country, while GNP measures all finished goods and services generated by a country’s citizens and companies, irrespective of their location. The article talks about GDP & GNP and their calculations and covers the difference between GDP & GNP.
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Table of Content
Comparison Table – GDP vs GNP
| GDP | GNP | |
| Definition | GDP is the total value of goods and services produced within a country’s borders in a given period. | GNP is the total value of all goods and services produced by a country’s citizens and companies, regardless of the location. |
| Function | GDP is often used to measure a country’s domestic economic activity. | GNP is more useful for measuring a country’s global economic power and influence. |
| Formula | GDP = Consumption + Investment + Government Spending + Net Export | GNP = Consumption Expenditures + Private Domestic Investment + Government Expenditure + Net Exports + (income earned by residents from overseas investments – income earned by foreign residents) |
| Basis | Location | Citizenship |
| Focus | Domestic production | Production by citizens of a country |
| Outlines | Highlights the strength of a country’s domestic economy. | Highlights the contribution of residents to the economy. |
Also read: Difference between Export and Import?
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What is GDP?
The Gross Domestic Product (GDP) is the best-known measure of a country’s wealth. It is the total value of the current production of final goods and services within the national territory during a period that is generally a quarter or a year.
Since an economy produces many goods, GDP is the sum of such elements in a single statistic of the global production of the aforementioned goods and services.
GDP Formula
The formula for calculating GDP with the expenditure approach is the following:
GDP = C + I + G + NX
Where,
C = Consumption
I = Investment
G = Government
NX = Net exports or a country’s total exports less total imports.
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How is GDP calculated?
There are three equivalent theoretical methods of calculating GDP:
Expense Method
GDP is the sum of all expenditures made to purchase final goods or services produced within an economy. That is, purchases of intermediate goods or services and also imported goods or services are excluded.
Value Added Method
GDP is the sum of the added values of the various stages of production in all sectors of the economy. The value that a company adds to the production process equals the value of its output minus the value of intermediate goods.
Method of Income
GDP is the sum of employees’ income, companies’ profits and taxes minus subsidies. The difference between the value of a company’s products and intermediate goods has one of the following three destinations: workers in the form of labor income, companies in the form of profits, or the state in the form of indirect taxes, such as the VAT.
What is GNP?
While the GDP measures the production of final goods and services within a country’s borders, the Gross National Product (GNP) measures the total economic output of a country of nationals. That is, of the citizens of a country, regardless of where they are located.
Explanation:
In all economies, some of the factors of production are owned by foreigners. Therefore, part of the income from labor and capital in the economy belongs to foreigners.
GDP measures the income from the factors of production within the nation’s borders, regardless of who receives the income.
GNP measures the income of residents in the economy, regardless of whether the income comes from domestic production or foreign production.
How to Calculate GNP?
The formula to calculate GNP is:
GNP = C + I + G + X + Z
Where,
C = Consumption
I = Investment
G = Government
X = Net exports
Z = Net income earned by domestic residents from overseas investments (-) net income earned by foreign residents from domestic investments.
Must Read – Gross National Product – Definition, Formula, Example, Features
Difference Between GDP and GNP
- GNP only considers citizens of a country and their economic output, while GDP measures economic output regardless of country of residence.
- GNP considers all output of domestic residents while including the economic activities of global companies like Apple, Microsoft, Walmart, etc., as well as domestic companies and their economic activity outside the country. On the other hand, GDP only measures a given nation’s economic output, so it does not consider this international activity nor the money remitted to foreign economies.
- GNP measures net income receipts from the international investments made by its residents, whereas GDP does not. Conversely, GDP will always include foreign investments within a country’s borders, whereas GNP will not.
GNP is an important and primary indicator of a country’s economic health. However, GNP has been largely replaced by Gross Domestic Product (GDP) as the preferred measure of economic activity, as it considers the value of all goods and services produced within a country’s borders, regardless of the producer’s nationality.
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