National income refers to the ultimate outcome of all economic activities of the country during a period of one year, measured monetarily. It is an imperative macroeconomic concept, that ascertains the business level and the economic status of the nation. There are a number of measures of National Income of the country, which includes, GDP, GNP, GNI, NDP and NNP.
Of these measures, GDP and GNI are the most widely used measure. GDP refers to the aggregate market value of all the finished goods and services produced by a country. On the other hand, GDP takes into account country’s GDP and net income earned abroad. To most of the people, these two measures are same, but the fact is there is a difference between GDP and GNI.
Content: GDP Vs GNI
|Basis for Comparison||GDP||GNI|
|Meaning||GDP refers to the official monetary measure of the aggregate output of products and services, produced by the country over the course on one year.||GNI implies the summation of country's gross domestic product and the net income earned abroad, during a particular accounting year.|
|Measures||Total output produced||Total income received|
|Represents||Strength of country's economy.||Economic strength of country's nationals.|
|Focuses on||Domestic production||Income generated by citizens|
Definition of GDP
The term ‘GDP’ is an abbreviation of Gross Domestic Product, which implies the market prices of the all finished goods and services that are produced within the domestic territory of the nation, during a period of one year. Domestic territory, refers a different meaning, in national income accounting which includes:
- The territory that is lying within the nation’s political boundaries, which encompasses the territorial waters of the country.
- Ships and aircraft, run by country’s nationals between two or more countries.
- Floating platforms, fishing vessels and oil and natural gas rigs, which are operated in the internal waters by country’s nationals or involved in extraction in the areas, in which the country posses official rights of exploitation.
- Consulates, Embassies and military establishments of the country, situated in another country.
Further, income earned domestically by foreigners are added to it while the incomes earned by country’s nationals overseas is deducted. It takes into account consumer spending, government spending, investments and net exports (i.e. exports less imports).
Definition of GNI
GNI is an acronym for gross national income which refers to the aggregate domestic as well as foreign output, held by the country’s nationals during a particular fiscal year. It includes gross domestic product plus factor incomes earned abroad by country’s residents less income derived by foreign residents domestically. Factor income refers to the income received from selling the means of production, i.e. land, labour, capital and entrepreneur.
GNI is often contrasted with GNP (Gross National Product), but there exist a fine line of difference between the two as the estimation of the former relies on the income flows while the latter is calculated on the basis product-flows.
Key Differences Between GDP and GNI
The significant differences between GDP and GNI are given below:
- The official quantitative measure of the aggregate output of products and services, produced by the country over the course on one year is called Gross Domestic Product or GDP. The summation of country’s gross domestic product and the net income earned abroad, during a particular accounting year, is called GNI
- While gross domestic product, is based on location, i.e. products produced within country’s geographical limits, gross national income denotes the aggregate value produced by the enterprises, owned by the country’s national’s irrespective of their location.
- GDP is nothing but the total output produced by the country during an accounting year. GNI is the total income received by the country, during an accounting year.
- GDP is used as an indicator of country’s economic strength. On the contrary, GNI is used to indicate the economic strength of the residents of the country.
- GDP stresses over domestic production whereas GNI lays emphasis on the income generated by the country’s citizens.
As both of these two reflect, how effectively the country is operating economically, year after year. Or these can be used as a yardstick to compare the country’s economy with those of the other country’s economy. GDP is a tool used to make an estimation of country’s standard of living, i.e. if the GDP is high, so does the level of living of the country’s residents and vice versa. On the contrary, GNI calculates total income generated by the residents of the country.