National Income implies the ultimate outcome of various economic activities of a country, conducted during given period, valued in monetary terms. It is the supreme macroeconomic variable that helps to gauge the economic soundness of the nation. Of different measures employed in the analysis of national income GDP and GNP are greatly used. GDP or otherwise called as gross domestic product delineates the sum total of the market value of all goods and services, produced within the geographical boundary of the nation in a given year.
On the other hand, Gross National Product or GNP is the aggregate market value of all goods and services created or produced during a particular period and net factor income from abroad.
There is a fight between the two measures, regarding which one is a better indicator of economic strength. The significant differences between GDP and GNP are discussed in this article excerpt. Have a look.
Content: GDP Vs GNP
|Basis for Comparison||GDP||GNP|
|Meaning||The worth of goods and services produced within the geographical limits of the country is known as Gross Domestic Product (GDP).||The worth of goods and services produced by the country's citizens irrespective of the geographical location is known as Gross National Product (GNP).|
|What is it?||Production of products within the country's boundary.||Production of products by the enterprises owned by the residents of the country.|
|Calculation||GDP = Consumption + Investment + Government Spending + Net Export||GNP = GDP - NFIA
|On which scale productivity is measured?||On a local scale||On international scale|
|Focus on||Domestic production||Production by nationals|
|Outlines||The strength of the country's domestic economy.||How the residents are contributing towards the country's economy.|
Definition of GDP
Gross Domestic Product or GDP, is the value of everything that is produced within the country’s domestic territory in a particular financial year. During the calculation of GDP, the primary focus is to capture the goods produced or services rendered within the nation’s border, whether the output is produced by the residents or non-residents of the country. The output produced outside the geographical boundaries of the country are not included in GDP.
GDP is an indicator of the size of the economy. It reflects the aggregate of consumption, investments, spending by the government and net export (export – import). In general, the GDP is calculated for one year. However, it can also be calculated for any term to forecast economic trends.
Definition of GNP
Gross National Product or GNP is the total market value of everything (i.e. goods and services) produced by the residents of the country during a particular accounting year.
GNP includes the income earned by the country’s nationals within and outside the country, but it excludes the income earned by the foreign citizens and companies within the country. You can understand the statement, through an example: There are many enterprises which are operating outside the country. Many citizens of a country work in another country. The income earned by all these persons is known as factor income earned from abroad. Likewise, non-residents render factor services within the domestic territory of the country for which they earn income. When you deduct the factor income paid to non-residents for rendering services from factor income received from abroad, the result will be the Net Factor Income received from Abroad (NFIA).
Key Differences Between GDP and GNP
The major differences between GDP and GNP are explained in the given below points:
- The monetary value of all the goods and services produced within the geographical limits of the country is known as GDP. GNP is the money value of all the goods and services made by the citizens of the country, no matter where they dwell.
- GDP gauges production of products within the country’s boundary. Conversely, GNP measures the production of products by the companies and industries owned by the residents of the country.
- The basis for calculating the GDP is the location, whereas GNP is based on citizenship.
- In the case of GDP, the measurement of productivity is done on a local scale while if we talk about GNP, it measures the productivity on an international level.
- GDP focuses on measuring domestic production, but GNP focuses on production by the nationals, i.e., individuals or corporations, of the country.
- GDP outlines the strength of the domestic economy of a country. On the other hand, GNP outlines how the residents are contributing towards the economy of the country.
The most important distinguishing point between these two is that while we calculate GDP, we take into consideration whatever is produced within the local borders of the country and so it includes the goods and services produced by the foreign nationals also but if we talk about GNP, only the production done by the country’s citizens is considered whether they are inside or outside the country and the contribution of foreign citizens are completely excluded.