GDP vs GNP

Updated November 16, 2023

Difference Between GDP vs GNP

Gross Domestic Product (GDP) can be defined as the total value of goods and services produced in the country within a certain period. GDP is the most widely used measure of the size of a particular nation’s economy. GDP only includes the purchases of newly-produced goods and services for that period. It excludes the sale or resale of goods produced in previous periods. Transfer payments, including unemployment, retirement, and wealth benefits, are excluded from the calculation of GDP since they do not contribute to the country’s economic output.

Calculation of GDP

The GDP of any country can be calculated by 2 methods: –

1. Expenditure Approach

The expenditure approach calculates GDP by summing up the amount spent on goods and services produced during the period.

where:

C = Consumption spending
I = Business investment (capital equipment, inventories)
G = Government Purchases
X = Exports
M = Imports

2. Income Approach

Under the income approach, GDP is calculated by summing the following three factors –

National income is the sum of the income received by all factors of production that go into the production of the final output.

National income = Compensation of employees (wages and benefits)
+ Corporate and government enterprise profits before taxes
+ Interest income
+ Unincorporated business net income (business owners’ incomes)
+ Rent
+ Indirect business taxes – subsidies (taxes & subsidies included in final prices)

Capital consumption allowance (CCA) measures the depreciation of physical capital from producing goods and services over a period. The amount required to reinvest to maintain the productivity of physical capital from one period to the next is known as CCA. Similarly, the statistical discrepancy is an adjustment made for the difference between GDP measured under the income and expenditure approaches, as they utilize different data sources.

Gross National Productivity (GNP) is similar to GDP but measures the total value of goods and services produced by the labor and capital of a country’s citizens. The difference is due to the non-citizen incomes of foreigners working within a country, the income of citizens who work in other countries, the income of foreign capital invested within a country, and the income of capital supplied by its citizens to foreign countries. The domestic country’s GDP includes the income from capital owned by foreigners invested within it while excluding it from its GNP. Similarly, the GNP of a country includes the income of its citizens working abroad in other countries, which is not included in its GDP.

GNP = GDP

+ Overall net income of domestic residents or businesses earned from foreign investments)
– Overall net income of foreign residents or businesses earned from domestic investments)

For Example: – If an Indian cricket player plays in the English County league and sends his British pound earnings to India, it will contribute positively to the GNP of India.

However, if an Australian player plays in the Indian IPL and sends his income back to Australia, it will reduce the GNP of India.

Head To Head Comparison Between GDP vs GNP (Infographics)

Below is the top 6 difference between GDP vs GNP

Key Differences Between GDP vs GNP

Both GDP vs GNP are popular choices in the market; let us discuss some of the major differences between GDP and GNP :

• GDP measures the total value of goods and services produced in a country within a certain period. In contrast, GNP measures the total value of goods and services produced by the labor and capital of a country’s citizens.
• The calculation of GDP involves the use of both expenditure and income approaches. Under the expenditure approach, GDP is calculated by:

Income approach for the calculation of GDP: –

While GNP is calculated as: –

GNP = GDP + Income earned by domestic residents/businesses in foreign countries – Income earned by foreign residents/businesses in domestic country

• GDP measures productivity on a local scale, while GNP measures productivity on an international scale.
• The calculation of GDP is based on location, whereas GNP is based on citizenship.
• The primary focus of GDP is on domestic production, while the primary focus of GNP is on production by labor and capital by the country’s nationals, i.e., individuals or corporations.

GDP vs GNP Comparison Table

Below is the topmost comparison between GDP vs GNP

Basis of Comparison	GDP	GNP
Meaning	The total value of goods and services produced in a country within a certain time period	The total value of goods and services produced by the labor and capital of a country’s citizens.
Basis	Location	Citizenship
Calculation	Two methods:- 1. Expenditure Approach GDP = C + I + G + (X-M) 2. Income Approach GDP = National Income + Capital Consumption Allowance + Statistical Discrepancy	GNP = GDP + Income earned by domestic residents/businesses in foreign countries – Income earned by foreign residents/businesses in domestic country
Focus	The focus of GDP is on domestic production	The focus of GDP is on production by citizens of a country
Scale of productivity	Measures productivity on a local scale	Measures productivity on an international scale
Highlights	Highlights the strength of a country’s domestic economy	Highlights how the residents of a domestic country contribute to the economy

Conclusion

In this GDP vs GNP article, we have seen both GDP vs GNP, which are the strengths of an economy. What differentiates GDP from other economic measures is that it determines the economic output of what is produced within the borders of a domestic country. In contrast, GNP determines the production of goods and services by the nationals of a country, even if it is outside the borders of a domestic country.

GDP remains the most popular method of measuring a country’s economic growth. Globalization and technology are driving the rapid expansion of business activities around the globe, both by individuals and businesses, leading to increased utilization of GNP. Both GDP vs Policymakers consider GNP elements when assessing the economy’s health.

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