Difference Between GNI and GDP

GNI(Gross National Income) and GDP(Gross Domestic Product) are two slightly different measurement units, used to measure the strength of a nation’s economy. GDP is the measure of economic activity produced by the nation. GNI is the measure of economic activity produced in addition to the abroad net income of the nation. GNI is simply the GDP plus the net abroad income. GNI is also known as GNP(Gross National Product).

GNI vs GDP

The main difference between GNI and GDP is the addition of net income from foreign countries or abroad to GNI. GNI is the sum of GDP and the net income from abroad. Abroad net income consists of the employee’s compensation, property income, taxes on production, import taxes, etc. Unlike GDP, GNI consist of aggregate net abroad income, which is derived by subtracting the income and profits of companies owned by the foreign firms from the incoming abroad income to the nation.

GNI(Gross National Income) is earlier known as GNP(Gross National Product). Gross National Income is the total value of all the final goods produced and services made within the political boundary of the nation added to the net income from abroad. The GNI can be simply stated as the sum of the GDP and the net foreign income. Usually, the GNI of a country is higher than the GDP of the same country(there are nations with inverted relations too).

GDP(Gross Domestic Product) is the aggregate of the value of total goods manufactured and services made by a nation in a period(financial year). Initial ideas of GDP were made by William Petty. Gross Domestic Product is the income produced within the country or by the people within the country. Finished goods and services include all the completely manufactured goods, ships, and aircraft run between countries, oil and natural gas rigs maintained in the country’s waters.

Comparison Table Between GNI and GDP

Parameters of ComparisonGNIGDP
DefinitionGNI is the metric, which is the aggregate of total goods manufactured and services made within the nation added to the net abroad income of the country.GDP is the total income produced by the goods manufactured and services made within a period(usually financial year).
LocationThroughout the globe related to the particular nation.Within the country.
FormulaGNI = GDP + net foreign incomeGDP = Finalized goods +services
MeasuresThe total income produced by the citizensThe total income produced in the country
Concentrates onOwnershipLocation

What is GNI?

GNI(Gross National income) is the economic term that measures the net income earned from foreign countries including GDP. GNI can be defined as the aggregate of the domestic and as well as foreign net worth income. GNI is simply the sum of GDP and the net abroad income. Net income obtained from other nations is the total income flowing from into the country from other nations deducting the income flowing from our country to foreign countries.

GNI(Gross National Income) is a similar measure to GNP(Gross National Product) with a very slight difference, i.e. GNI refers to the value of the final goods and services produced plus the net income from foreign countries. Whereas GNP calculates the income and profits of the citizens and their company regardless of the location, they are present.

Gross National Income = Gross aggregate of all finalized products + Gross aggregate of total services made + Net income from foreign countries.

For instance, an American-owned company operating in India sends its profits back to the country. Then the U.S GNI grows as the profits were counted into the U.S GNI but not India’s. Hence, we can state that GNI is based on ownership. Usually, GNI and GDP are close. But if the income flowing out of the country is higher than the income flowing into the country then GNI falls significantly.

What is GDP?

GDP(gross domestic product) refers to the aggregate of the cost or worth of all the manufactured goods and services made in a country in a period(financial year). There are many definitions for GDP. GDP is used as the measure for international comparison between nations and the broad economic comparison of the nation over years. GDP includes the income by the foreigners domestically and excludes the income earned by the nation overseas.

GDP can be estimated in three ways. These three ways will and should give the same value theoretically. Three ways of calculating GDP are as follows:

  1. Calculating the value through goods produced
  2. Calculating the value of GDP through finding the income
  3. Calculating through the consumption

First way of calculating GDP is, adding up all the value of goods produced and services provided in a year(financial year).

The income approach is the summation of total primary incomes produced by resident units. Some of the primary income units are wages, salaries, corporate profits, invested incomes, farmer incomes, non-farm business incomes.

GDP = Employee’s compensation + Total operating surplus + Gross mixed income + net rents income.

The expenditure approach is the third way of method to measure the GDP. In this method, GDP is calculated by gross services and final goods produced, which are measured in the purchaser’s price.

GDP defines its scope according to the location. GDP is the national income of the country within the country.

Main Differences Between GNI and GDP

  1. GNI is the aggregate value of the income flowing into the countries from foreign countries excluding the income flowing out of the country added to GDP. GDP is the aggregate value of the total goods and services produced within the political boundaries of the nation in a particular period.
  2. Another notable difference between these two economic terms is, GNI focuses on ownership and GDP focuses on location.
  3. Gross National Income is the income produced by the citizens and companies of the nation regardless of their location. Gross Domestic Product is the income produced within the country.
  4. GNI is the measure used to show the economic strength of a nation’s citizens whereas GDP is the measure to show the strength of the nation’s local income.
  5. Gross National Income stresses the income generated by the citizens of the country.Gross Domestic Product emphasis on domestic production.

Conclusion

GNI and GDP are effective economic terms used to measure the economic strength of the country. Both these tools are measured annually for every nation. Gross Domestic Product is an aggregate of income produced through final goods and serviced made within the nation. While Gross National Income is the aggregate value of goods and services made plus the total abroad income(deducting the out flow income from in flow income).

GNI can also be stated as the gross of the total income generated by citizens and their companies. Usually, GNI and GDP will be parallel in the comparison graphs. But if the outflow income of the country is higher than the incoming worth then GNI lies down the GDP. Both the terms GNI and GDP are used to rank and compare the standard of living of the people and the performance of the nation in the economy.

References

  1. https://www.tandfonline.com/doi/abs/10.1080/01621459.1958.10501423
  2. https://www.taylorfrancis.com/chapters/edit/10.4324/9780203796146-32/gross-domestic-product-dan-neill

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