What Is Gross National Income (GNI)?
Let me tell you directly: Gross National Income (GNI) reflects the total earnings of a nation's residents and businesses, encompassing both domestic and foreign income. This measure includes Gross Domestic Product (GDP) alongside income from international sources, giving you a comprehensive view of a nation's wealth.
You should know that GNI is often a more accurate measurement than GDP for certain countries because it accounts for global economic interactions. While GDP captures the value of goods and services produced within a country's borders, GNI highlights the broader economic reality by including foreign investments and income. For instance, the U.S. Bureau of Economic Analysis tracks GDP to gauge the U.S. economy's health annually, but GNI can provide deeper insights, especially in countries with significant foreign economic ties.
Key Takeaways
- Gross National Income (GNI) encompasses the total income earned by a nation's people and businesses, including earnings from foreign investments and economic aid.
- GNI incorporates gross domestic product (GDP) and adds income from overseas sources, making it sometimes a more accurate reflection of national wealth than GDP alone.
- The difference between GDP and GNI can be significant in countries with high foreign aid or foreign-controlled production, as seen in Bangladesh or Ireland.
- GNI is used by organizations like the World Bank and the European Union to better assess economic contributions and measure national wealth.
- For countries with stable foreign income and payments, like the U.S., GNI and GDP figures tend to be similar, while nations with high foreign influence see larger variances.
In-Depth Look at Gross National Income (GNI)
GNI calculates the total income earned by a nation’s people and businesses, including income from abroad. It also covers money received from abroad, such as foreign investment and economic development aid.
Residence, rather than citizenship, is the criterion for determining nationality in GNI calculations, as long as the residents spend their income within the country. GNI has come to be preferred to GDP by organizations such as the World Bank. It is also used by the European Union to calculate the contributions of member nations.
To calculate GNI, compensation paid to resident employees by foreign firms and income from overseas property owned by residents is added to GDP, while compensation paid by resident firms to overseas employees and income generated by foreign owners of domestic property is subtracted. Product and import taxes that are not already accounted for in GDP are also added to GNI, while subsidies are subtracted.
Comparing GNI with GDP: Real-World Examples
For many nations, there is little difference between GDP and GNI, since the difference between income received by the country versus payments made to the rest of the world does not tend to be significant. For instance, the U.S. GNI for 2024 was about $29.243 trillion, and the GDP in that same year was $29.184 trillion.
For some countries, however, the difference is significant. GNI can be much higher than GDP if a country receives a large amount of foreign aid or foreign investment. This is the case with Bangladesh, which recorded a 2024 GNI of $469.5 billion compared to a GDP of $450 billion. But it can be much lower if foreigners control a large proportion of a country's production, as is the case with Ireland, a low-tax jurisdiction where the European and U.S. subsidiaries of a number of multinational companies nominally reside. Ireland recorded a 2024 GNI of just over $437 billion while their GDP for the same period stood at $577 billion.
Distinguishing GDP, GNI, and GNP: Key Differences Explained
Of the three measures, GNP is the least used, possibly because it might be deceptive. For instance, if a nation's wealthiest citizens routinely move their money offshore, counting that money would inflate the nation's apparent wealth.
In fact, GNI may now be the most accurate reflection of national wealth given today's mobile population and global commerce. GDP is the total market value of all finished goods and services produced within a country in a set time period. GNI is the total income received by the country from its residents and businesses, regardless of whether they are located in the country or abroad. GNP accounts for all income from a country’s residents and businesses, whether spent domestically or abroad, and includes foreign subsidies and taxes.
Frequently Asked Questions
How does GNI differ from GDP and GNP? Gross national income (GNI) calculates the total income earned by a nation's people and businesses, including investment income, regardless of where it was earned. It also covers money received from abroad, such as foreign investment and economic development aid. GDP is the total market value of all finished goods and services produced within a country in a set time period. GNP includes the income of all of a country's residents and businesses, whether it flows back to the country or is spent abroad. It also adds subsidies and taxes from foreign sources.
How is GNI calculated? To calculate GNI, compensation paid to resident employees by foreign firms and income from overseas property owned by residents is added to GDP, while compensation paid by resident firms to overseas employees and income generated by foreign owners of domestic property is subtracted. Product and import taxes that are not already accounted for in GDP are also added to GNI, while subsidies are subtracted.
When is GNI useful? For nations like the U.S., there is little difference between GDP and GNI. The difference between income received and payments made to the rest of the world does not tend to be significant. For some countries, however, the difference is significant. GNI is higher than GDP when a country receives substantial foreign aid, as seen in East Timor. Conversely, GNI is lower when foreigners control much of the production, as in Ireland, where many multinational firms are based.
The Bottom Line
GNI represents the total income earned by a country’s residents and businesses, including earnings from outside the country. It's a measure of national wealth that can be used as an alternative to gross domestic product (GDP). To calculate GNI, add income from foreign sources to a country's GDP.
For many countries, there isn't much difference between GNI and GDP. If a country gets a lot of foreign aid or investment, its GNI can be much higher than its GDP.
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