GDP vs GNP: Difference and Comparison

In the present-day world, it is not uncommon to stumble across these two words, GDP and GNP, often. GDP, which stands for Gross Domestic Product.

Key Takeaways

  1. Gross Domestic Product (GDP) measures the value of goods and services produced within a country’s borders. In contrast, Gross National Product (GNP) measures the total value of goods and services a country’s residents produces, regardless of location.
  2. GDP focuses on the production location, while GNP focuses on the nationality of producers.
  3. GDP is commonly used for international comparisons, while GNP is often used to analyze a country’s overall economic health.

GDP vs GNP

The difference between GDP and GNP is quite easy to comprehend as GDP is measured within a country’s defined boundary, whereas GNP is calculated by taking into report both domestic and foreign monetary activities. These two phrases have some other little differences, too, based on how foreign and non-residential citizens’ income is evaluated.

GDP vs GNP 1

GDP is the metric that’s most commonly used to measure the economic growth and present size of a country’s economy. It is the total monetary value of the finished commodities, goods, and services produced within the boundaries of a nation (domestically) over a specific time phase, and mostly it’s measured yearly.

GNP, on the other hand, is the procedure to compute the monetary growth of a country made by all of its citizens residing both within and outside the country. For instance, an Indian resident working in the United States can contribute to the country’s GNP if he has citizenship in India.

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Comparison Table

Parameters of differenceGross Domestic ProductGross National Product
Boundary It is measured within the boundary of a countryIt is measured both within and outside the boundaries of a country
Non-residential citizensNon-residential citizens contribute to a country’s gross domestic product Non-residential citizens will not contribute to a country’s Gross National Product unless they have dual citizenship
Foreign citizensForeign citizens income is included as a part of Gross Domestic Product if they work within the country.Foreign citizens income is not included in a countries GNP.
OwnershipCompanies\factories within a country  boundary contribute to gross national product irrespective of ownershipCompanies belonging to a particular country contributes to their Gross National product, irrespective of who works in it.
Formula of calculationGDP = consumption + investment+ spending by government + exports GNP = GDP + (money flow IN foreign countries – money going TO foreign countries)

What is GDP?

The GDP of a country is the consumption, investment, government spending and exports within a country’s boundary. Non-residential citizens who send their money to their own country contribute to the GDP of their country.

The rather simple method to calculate GDP is the sum of consumption, investment, and spending by the government, which also includes the other expenditures made by the government. It is one of the most important systems to calculate a country an economic activity and growth and also reflects the living standards of the people of that very country.

Foreign citizens who own a company or their own industry within the territories of India also pay to the government is included in the country’s GDP. GDP is mainly of four varied types which include – Real GDP followed by nominal GDP, then comes actual GDP and finally possible GDP.

Taking a simple example, if a Miniso store is present within India, it contributes to India’s GDP while it pays taxes to the government. Also, Indian employees working in that store, when spending money inside the country, contribute to GDP.

gdp

What is GNP?  

The term GNP implies the accumulated amount of consumption, along with investment, exports and expenditure of the government. This includes actions both within and outside of the border of a country.

The simple words GNP is the sum of GDP and the money flowing into another foreign country (belonging to this country) and negating the money flow to a foreign country). GNP is mainly derived from the GDP.

Based on the formula, we can say that the income of foreign residents isn’t included in the country’s GNP even if they invest it within that same country.  It becomes the GNP of the country they originally belonged to.

Taking an example to explain this concept of GNP, if an Indian citizen lives in the United States and has citizenship of India, all earnings by him are included in the GNP of India.

gnp

Main Differences Between GDP and GNP

  1. The gross domestic product includes the economic values of all finished goods and services that are done within the boundary of the country.
  2. The income by non-residential citizens when sending their money into their own country promote the GDP growth of their own country. In contrast, non-residential citizens do not contribute to the GNP of their own country.
  3. Foreign citizens who work in a company present in another country contribute to the GDP of that country. however foreign citizens’ income isn’t considered while calculating GNP
  4. Industries, companies and factories present inside the country contribute to its GDP irrespective of ownership. Whereas industries, companies and factories owned by the citizens of a particular country contribute to its GDP, respective of its location.
  5. Gross Domestic Product is calculated using the formula –

GDP = consumption + investment+ spending by government + exports.  

Gross national product is measured by the formula – = GDP + (money flow IN foreign countries – money going TO foreign countries.

Difference Between GDP and GNP
References
  1. https://www.sciencedirect.com/science/article/pii/S0301421501000179
  2. https://www.researchgate.net/profile/Jannatul-Bristy/publication/314484207_GDP-GNP_Gap_Trade-Off-is_it_Significant_for_Economic_Performance_Review_of_World_Economies_Having_Both_Gaps/links/5d09b0f7a6fdcc35c1592fa7/GDP-GNP-Gap-Trade-Off-is-it-Significant-for-Economic-Performance-Review-of-World-Economies-Having-Both-Gaps.pdf

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