Gross National Product (GNP)

One of the most important macroeconomic measures of a nation's economic situation is gross national product (GNP). Whether the production takes place inside the national borders or overseas, it shows the whole financial worth of all goods and services generated by the people living in a nation over a specific period—usually a year. GNP basically consists of GDP (gross domestic product) plus net income from abroad—that is, income generated by citizens from foreign investments less income generated by foreigners within the home economy.

 

What is the Gross National Product?

Usually a year, gross national product is the total market value of all final goods and services created by the citizens of a nation. It excludes money made by foreign nationals inside the national income and includes income earned by citizens of the country both inside and outside of the domestic territory.

Formula: 

 

GDP = GDP + Net Factor Income from Abroad (NFIA)   Where,  GDP = Gross Domestic Product NFIA = Income earned by residents from abroad - Income earned by foreigners domestically

 

From a national ownership standpoint, this approach lets economists see a nation's economic strength more clearly.

 

For example, India's GNP includes income earned by an Indian citizen from their American firm but does not show on its GDP.

 

Key Components of GNP

Understanding the general income situation of the people and businesses of a nation depends particularly on GNP. For example, a nation with a lot of international businesses could have a far larger GNP than GDP as those businesses make money overseas that helps their own nation. On the other hand, a nation's GNP could be less than its GDP if many foreign companies conduct business locally and repatriate earnings back home.

Breaking GNP down into its main elements helps one to better grasp it:

• Consumption (C): Household purchases of goods and services.
• Investment (I): Corporate capital expenditures including buildings and machinery.
• Government expenditure (G): Imposed on infrastructure and public services.
• Net Exports (X - M): It exports less imports. Money earned by nationals overseas and money obtained by foreigners within the nation differs from net income from abroad.

 

Key Importance of GNP

Comparative study, policy development, and economic planning all benefit from GNP. Unlike GDP, which measures domestic output, GNP stresses the value created by a nation's people, hence perfect for assessing the general welfare and economic participation of its people. It enables governments to evaluate trade imbalances, create plans to raise income from overseas, and examine how globalization affects national income.

Moreover, important for comprehending wealth inequalities is GNP. Countries with high diasporas or foreign investments, for instance, could gain greatly from remittances and foreign revenue, therefore increasing their GNP even if their home GDP is somewhat low.

GNP emphasizes ownership while GDP is more concerned with location. These are the reasons GNP counts:

• Reflects actual national income including remittances and income from foreign investments.
• Comparative studies benefit from countries with high GNP compared to GDP who have either significant overseas populations or foreign investments.
• Policy planning helps governments structure their economic policies in view of foreign economy income flow.

 

Did you know?  In worldwide economic reporting, the idea of GNP was once more often applied than GDP. But in the early 1990s, most nations—including the United States—turned to GDP as the main indicator because of its simplicity and emphasis on home industry. For nations with significant foreign investment and migratory traces, GNP still is absolutely vital.

 

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Frequently Asked Questions (FAQs)

How does GNP differ from GDP?

While GDP counts the total output inside a nation's boundaries, GNP excludes revenue earned by foreigners inside the nation and includes income made by its citizens and businesses overseas.

Why does some nation have a GNP less than their GDP?

This occurs when foreign businesses make more within a nation than the nationals make elsewhere. Repatriation of these foreign profits lowers net income from overseas.

Is GNP still applied nowadays?

GNP is still utilized in particular economic situations, especially for nations with large incomes from abroad or strong remittance inflows, even although GDP is now the more often used statistic.