What Is Gross National Product (GNP)?
Let me explain gross national product, or GNP, directly to you. It's the value of products and services produced by the citizens of a country, both domestically and internationally, but it doesn't include income earned by foreign residents.
You calculate GNP by adding up personal consumption expenditures, private domestic investment, government expenditure, net exports, and income earned by residents from overseas investments, then subtracting income earned by foreign residents. Net exports are simply what a country exports minus its imports of goods and services.
GNP relates closely to gross domestic product, or GDP, which accounts for all output produced within a country's borders, no matter who owns the production means. To get GNP, you start with GDP, add residents' income from overseas investments, and subtract foreign residents' income earned inside the country.
Key Takeaways
- GNP measures the output of a country's residents regardless of where the economic activity happens.
- Income from overseas investments by residents counts in GNP, but foreign investment within the country's borders does not—this contrasts with GDP, which focuses on location rather than nationality.
- GNP and GDP can differ in value.
- A large difference between GNP and GDP suggests significant integration into the global economy.
How Gross National Product (GNP) Works
GNP works by measuring the total monetary value of output produced by a country's residents. That means you exclude any output from foreign residents within your borders, but you include output from your residents outside those borders.
It avoids double-counting by not including intermediate goods and services, since they're already part of the final goods and services' value.
The U.S. used GNP as its main economic measure until 1991, when it switched to GDP. I can tell you the reasons: GDP aligns better with other U.S. data like employment and industrial production, which focus on activity inside U.S. borders regardless of nationality. Also, most other countries used GDP, making cross-country comparisons easier.
GNP vs. GDP
GNP and GDP are similar, but the differences arise from foreign-owned companies producing in the country and domestic companies producing abroad, with income flowing back to residents.
For instance, foreign companies in the U.S. produce goods and send income to their foreign owners—that gets subtracted in GNP. U.S. companies abroad earn profits for U.S. residents, which get added.
If domestic income from abroad exceeds foreign income earned domestically, GNP will be higher than GDP. In Q4 2024, U.S. GDP was $29.7 trillion, while GNP was $29.8 trillion.
While GDP is the go-to measure for economic activity, GNP is still useful. Large differences between them show a country is deeply involved in international trade, production, or finance. The bigger the gap, the more transnational activity like foreign direct investment is at play.
What Does Gross National Product Measure?
GNP measures a nation's economic output as the value of all products and services produced by its citizens, domestically and internationally, minus foreign residents' income. For example, if a country has factories at home and in a neighboring country, GNP includes both.
What Is the Difference Between Gross National Product and Gross Domestic Product?
GNP accounts for citizens' production inside and outside borders, subtracting foreign residents' income within the country. GDP, however, measures all production within borders by both citizens and foreigners.
What Is an Example of Gross National Product?
If a country's GNP exceeds its GDP, it means its citizens, businesses, and corporations are bringing in net inflows from overseas. This signals growing international financial operations, trade, or production.
The Bottom Line
GNP tracks what a country's citizens produce, no matter where they are in the world. Unlike GDP, which stays within borders, GNP follows ownership. If citizens earn a lot abroad, GNP can top GDP. It shows how interconnected the global economy is, especially with a big gap to GDP.
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