What Is Gross National Product (GNP)?
Gross national product (GNP) is an estimate of the total value of all the final products and services turned out within a given period by the means of production owned by a country’s residents. GNP is determined by summing up personal consumption expenditures, private domestic investment, government expenditure, net exports, and any income residents earn from overseas investments. It’s essential to then subtract the income earned by foreign residents. Net exports represent the difference between a country’s exports and its imports of goods and services.
GNP aligns closely with gross domestic product, which focuses on all output produced within a country’s borders, regardless of ownership of the means of production. GNP, however, starts with GDP, adds residents’ income from overseas ventures, and subtracts foreign residents’ income earned within the country’s borders.
Key Takeaways
- Inclusive Measure: GNP considers the output of a country’s residents, no matter where the economic activities occur.
- Global Perspective: Income from residents’ overseas investments is factored into the GNP calculation, while foreign investments within the country are not, in contrast to GDP which is location-based.
- Revealing Disparities: Substantial differences between GNP and GDP highlight significant global economic engagement.
Understanding Gross National Product (GNP)
GNP reflects the total monetary value of the output produced by a country’s residents. To maintain accuracy, it excludes any output generated by foreign residents within the country while counting the output produced by the country’s residents abroad.
GNP only includes final goods and services to avoid the issue of double-counting, as intermediate goods and services are already part of the final values.
Historically, the U.S. used GNP as the primary measure of economic activity until 1991. The transition to GDP stemmed from its alignment with other significant economic indicators like employment and industrial production and its facilitation of international comparisons, given that most countries benchmark their economic output with GDP.
The Difference Between GNP and GDP
Both GNP and GDP are critical economic measures, differing mainly in their consideration of international economic activities. Companies owned by foreign residents producing within the country and companies owned by domestic residents producing anywhere globally influence these metrics.
For instance, American businesses operating internationally contribute to the U.S. GNP, which is adjusted for domestic income earned within the country by foreign corporations. If the U.S. earns more abroad than it pays out domestically to foreign entities, its GNP will exceed its GDP.
An example to illustrate: In 2021, U.S. GDP was approximately $23.8 trillion, while GNP was slightly higher at $23.9 trillion. This differential can indicate robustness in international economic activity, trade, or financial engagements.
What Does Gross National Product Measure?
Gross National Product measures a nation’s economic output by encompassing the value of all products and services produced by its citizens globally. It captures domestic productivity plus the international outputs, subtracting the earnings of foreign residents and entities.
What Is the Difference Between Gross National Product and Gross Domestic Product?
GNP accounts for the production value attributed to a nation’s residents both domestically and overseas, minus the income earned by foreign entities inside the country. Conversely, GDP measures the totality of production within a country’s borders, inclusive of all residents and foreign contributors.
What Is an Example of Gross National Product?
Imagine a country where GNP exceeds GDP. This scenario signals that the country’s businesses and citizens significantly contribute to global economic activities, with substantial net inflows from international endeavors. Such a condition reflects rising international financial operations, trade, or production activities associated with the country’s residents.
Related Terms: Gross Domestic Product, GDP, Net National Product, International Trade, Foreign Direct Investment.
References
- International Monetary Fund (IMF). “Gross Domestic Product: An Economy’s All”.
- U.S. Bureau of Economic Analysis. “Gross Domestic Product (GDP)”.
- U.S. Bureau of Economic Analysis. “Gross Domestic Product as a Measure of U.S. Production”. Page 8.
- Federal Reserve Bank of St. Louis. “Table 1.7.5. Relation of Gross Domestic Product, Gross National Product, Net National Product, National Income, and Personal Income”.
