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What is the difference between GDP and GNP?

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What is the difference between GDP and GNP?
posted Jun 27, 2017 by anonymous

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Gross Domestic Product (GDP) and Gross National Product (GNP) both try to measure the market value of all goods and services produced for final sale in an economy. The difference is how each term interprets what constitutes the economy.

GDP refers to and measures the domestic levels of production, whereas GNP measures the levels of production of any person or corporation of a country. For example, the American GNP measures the production levels of any American or American-owned entity, regardless of where in the world the actual production process is taking place, and defines the economy in terms of the citizens. GNP measures the compensation and investment income received by nationals working or investing abroad. GNP is less commonly referred to than GDP, but is best described as the measure of national output.

Depending on circumstances, GNP can be either higher or lower than GDP. This depends on the ratio of domestic to foreign manufacturers in a given country. For example, China's GDP is $300 billion greater than its GNP, according to Knoema, a public data platform, due to the large number of foreign companies manufacturing in the country, whereas the GNP of the U.S. is $250 billion greater than its GDP, because of the mass amounts of production that take place outside of the country's borders.

Though both calculations attempt to measure the same thing, generally speaking, GDP is the more commonly utilized method of measuring a country's economic success in the world, but GNP can be useful as well. It is important to reference both when trying to get an accurate description of a given country's economic worth.

Organizations like The World Bank and the Human Development Index (HDI) have replaced GNP with Gross National Income (GNI) to better measure the income of a country. While GNP and GNI are very similar in purpose and definition, the GNI is a better measure of income rather than production.

answer Jun 29, 2017 by Shantanu Arora
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