In economics, Gross Domestic Product (GDP) and Gross National Product (GNP) represent two of the most significant metrics for measuring the performance of an economy. The difference between GDP and GNP is in what each metric focuses upon. It is a measure of the value of production produced inside the borders of a country regardless of ownership of production assets. This is in contrast to GNP, which measures the total value of goods and services produced by the residents of a country outside its boundaries and within it. Therefore, the maximum difference is that GDP is location-oriented and GNP is ownership-based.
What is GDP?
GDP stands for Gross Domestic Product which describes the value of all finished products and services produced on the country’s territory over a specified period of time, usually over a year or a quarter. It is the usual indicator used in calculating the size and health of a country in terms of economy. One of the things that an economist and the government usually refer to in the performance of an economy is the GDP, aside from a lot of other statistics.
On the contrary, GDP is based only on production within a country’s geographical borders, irrespective of ownership of resources or factors. Thus, if a flat company has a factory in India, produces, and sells goods there, these do not bring into a foreign company’s country’s GDP but belong to India’s GDP.
Types of GDP
There are various types of GDP, such as:
- Nominal GDP: The raw figure of the GDP amount of the country unadjusted for inflation or deflation.
- Real GDP: Adjustment for inflation to get a clearer picture of the economic growth.
GDP per capita which is GDP divided by population, expressed in terms of output per person.
Formula for GDP:
GDP = C + I + G + (X – M)
Where:
C = Consumer Spending
I = Investment Spending
G = Government Spending
X = Exports
M = Imports
It is most relevant to understand GDP for its effects on the sides of policymaking and strategy with respect to the economy.
What is GNP?
Gross National Product, as opposed to GDP, is a parameter for measuring the total market value of all goods and services produced by residents of a country over a defined period of time, regardless of where they are produced. Put simply, it focuses on the income of a country’s individuals no matter where they earn it, be it within or beyond the country’s borders.
As in, the gains made by operating in the United States would multiply India’s GNP, when an Indian company has operations in the United States, even if the production is foreign. The same applies for people earning money abroad. For instance, the earnings of an Indian citizen who works in the UK get added to India’s GNP.
How is this GNP Calculated?
GNP is calculated as GDP plus net income of residents from abroad and less income by foreigners within the country. In effect, it means GNP includes international production of residents applied to foreign production on the land of the country.
Formula for GNP:
GNP = GDP + Net Income from Abroad
Difference Between GDP and GNP
Having learned so much about both GDP and GNP, it is now time to keep our eyes on the difference between GDP and GNP. The chief difference between GDP and GNP can be traced in lines as
Focus on Location vs. Ownership
GDP is the measure of total production within the borders of a country, without regard to ownership.
GNP measures the total production by residents of a country, without regard to location.
Net Income from Abroad
GDP does not consider income earned by residents of a country abroad or income earned by foreign residents within the country.
Income earned by residents who live abroad but does not include income earned by foreign residents residing within it.
Measurement of Economic Activity
GDP is an assessment of the economic strength of a country in terms of the current outputs and the productivity. GNP, on the other hand, depicts economic strength concerning residents of a country and their participation in global economic activities.
| Metric | GDP | GNP |
| Definition | Measures total production within country borders | Measures total production by a country’s residents within and outside the country |
| Focus | Location-based | Ownership-based |
| What it includes | Income raised within borders | Income generated by residents, both domestic and foreign |
| Formula | GDP = C + I + G + (X – M) | GNP = GDP + Net Income from Abroad. |
Difference Between GDP and GNP Under Macroeconomics
The macroeconomic difference between GDP and GNP stems from how the economy’s performance is used to gauge economic growth within countries. GDP is a barometer of the economic health of a country within its borders, while GNP gives a broader dimension on the performance of the residents with the outside world. More interestingly macroeconomically, the difference relates GDP and GNP macroeconomically in understanding policy options on the making of decisions concerning national income, trade policies, or even foreign investments. For instance, high GDP but low GNP could be indicative of a country where foreign companies benefit more from production than its residents, while very high GNP would mean that a country’s residents are successfully bringing home income from abroad. GDP and GNP are both useful measures for understanding the economic condition but serve different tasks in economic analysis.
With respect to GDP and GNP under Macroeconomics, these are two influencers in society who influence how the economy performs-and indeed the main difference between GDP and GNP. GDP measures economy within their countries, while GNP measures residents’ economy internationally. The largest macroeconomic difference is simply the fact that it does assist a policymaker in making informed decisions regarding national income, trade policies, and investment from abroad. For example, high GDP but low GNP indicates a country where benefits from production are less for its residents but maximally for foreign companies. On the other hand, high GNP means where residents of the country are quite successful in earning money from abroad. Both GDP and GNP can be applied to analyzing economic conditions, though they are used differently under economic analysis.
Differences in Formula Between GDP and GNP
The distinction is clarified through the method of calculation underlying both concepts. As explained earlier, the two formulas for GDP and GNP differ in that GNP includes net income received from abroad.
GDP is:
GDP = C + I + G + (X – M)
Where:
C = Consumer Spending
I = Investment Spending
G = Government Spending
X = Exports
M = Imports
GNP is as follows:
GNP = GDP + Net Income from Abroad
Here, net income from abroad means the income residents earn from foreign investments or jobs minus the income foreign residents earn in the country.
GDP vs GNP FAQs
1. What is the main thing that differentiates GDP and GNP?
GDP simply measures the total production of goods and services produced within the country’s borders.
GNP is equal to GDP plus income earned by residents abroad, minus income earned by nonresidents within the country.
2. What is the difference between GDP and GNI?
GDP refers to what is produced irrespective of where it is produced in the country.
GNI (Gross National Income) is equal to GDP and includes net income from abroad like GNP.
3. Which is larger GDP or GNP?
In essence, GNP can be either greater or lower than GDP, depending upon net foreign income.
When citizens earn much more abroad than foreigners earn in the country, GNP will be higher.
4. What is GDP in easy words?
GDP is the value of everything produced in the country.
Shows how strong the economy of a nation is.
5. What do you mean by GNP?
GNP is the total value of goods and services produced by people in the country.
This also includes domestic income and international income of citizens.
