Difference Between GDP and GNP

Before jumping into the difference between GDP and GNP, let’s understand where they belong in the field of economics. Both of these terms are measures of national income. National income is a macroeconomic variable that helps determine a country’s economic stability. It represents a country’s total income from all economic activities in a given year. The most commonly used method of calculating national income involves two concepts: GDP and GNP. GDP stands for gross domestic product, while GNP stands for gross national product.

GNP and GDP are both measures of a country’s national output and income. The primary distinction is that GNP (Gross National Product) includes net foreign income.

Definition of GDP

GDP, or Gross Domestic Product, is the total value of all goods and services produced within a country’s domestic territory during a given fiscal year. The primary focus of GDP calculation is to capture goods produced or services rendered within the nation’s borders, regardless of whether the output is produced by residents or non-residents of the country. GDP excludes output produced outside of the country’s geographical boundaries.

A country’s GDP is a measure of its economic size. It reflects the sum of consumption, investment, government spending, and net export (export – import). In general, GDP is calculated for a single year. It can, however, be calculated for any term to forecast economic trends.

Definition of GNP

The Gross National Product, or GNP, is the total market value of everything produced by residents of a country during a given fiscal year (i.e. goods and services).

GNP includes income earned by nationals both inside and outside the country, but excludes income earned by foreign citizens and businesses within the country. An example will help you understand the statement: There are many businesses that operate outside of the country. Many citizens of one country work in another. The income earned by all of these people is referred to as factor income earned from abroad.

Similarly, non-residents provide factor services within the domestic territory of the country from which they earn their living. When factor income paid to non-residents for rendering services is subtracted from factor income received from abroad, the result is Net Factor Income Received from Abroad (NFIA).

To calculate GNP, add GDP and NFIA together (i.e. The income earned by residents abroad less the income earned by non-residents within the country).

Difference between GDP and GNP

The following points explain the major differences between GDP and GNP:

  • GDP is the monetary value of all goods and services produced within the country’s geographical boundaries. GNP is the monetary value of all goods and services produced by citizens of the country, regardless of where they live.
  • GDP measures the production of goods within a country’s borders. GNP, on the other hand, measures the production of goods by companies and industries owned by citizens of the country.
  • The location is used to calculate GDP, whereas citizenship is used to calculate GNP.
  • The measurement of productivity in the case of GDP is done on a local scale, whereas GNP measures productivity on an international scale.
  • GDP measures domestic production, whereas GNP measures production by nationals, i.e., individuals or corporations in the country.
  • GDP measures a country’s domestic economy’s strength. GNP, on the other hand, describes how residents contribute to the country’s economy.

The most important distinction between these two is that when we calculate GDP, we take into account everything produced within the country’s borders, including goods and services produced by foreign nationals, whereas when we talk about GNP, we only consider what is produced by the country’s citizens, whether they are inside or outside the country, and the contribution of foreign citizens is completely excluded.

Gross domestic product (GDP) and gross national product (GNP) are both popular estimates of a country’s total economic output. GDP is a measure of the value of goods and services generated within a country’s borders by both citizens and non-citizens. GNP estimates the value of goods and services generated not just by a country’s people, but also by foreigners. GDP is the most often used metric in world economies. In 1991, the United States abandoned the usage of GNP in favor of GDP as a means of comparing itself to other economies.

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