What is 'Gross National Product - GNP'
Gross national product (GNP) is an estimate of total value of all the final products and services produced in a given period by the means of production owned by a country's residents. GNP is commonly calculated by taking the sum of personal consumption expenditures, private domestic investment, government expenditure, net exports, and any income earned by residents from overseas investments, minus income earned within the domestic economy by foreign residents. Net exports represent the difference between what a country exports minus any imports of goods and services.
GNP is related to another important economic measure called gross domestic product (GDP), which takes into account all output produced within a country's borders regardless of who owns the means of production. GNP starts with GDP, adds residents' investment income from overseas investments, and subtracts foreign residents' investment income earned within a country.
BREAKING DOWN 'Gross National Product - GNP'
GNP measures the total monetary value of the total output produced by a country's residents. Therefore, any output produced by foreign residents within the country's borders must be excluded in calculations of GNP, while any output produced by the country's residents outside of its borders must be counted. GNP does not include intermediary goods and services to avoid double-counting since they are already incorporated in the value of final products and services.
The Difference Between GNP and GDP
GNP and GDP are very closely related concepts, and the main differences between them comes from the fact that there may be companies owned by foreign residents that produce goods in the country, and companies owned by domestic residents that produce products for the rest of the world and revert earned income to domestic residents. For example, there are a number of foreign companies that produce products and services in the United States and transfer any income earned to their foreign residents. Likewise, many U.S. corporations produce goods and services outside of the U.S. borders and earn profits for U.S. residents. If income earned by domestic corporations outside of the United States exceeds income earned within the United States by corporations owned by foreign residents, the U.S. GNP is higher than its GDP.
While GDP is the most widely-followed measure of a country's economic activity, GNP is still worth looking at because large differences between GNP and GDP may indicate that a country is getting more engaged in international trade , production or financial operations. Finally, real GNP may prove to be a more useful measure, since it factors out any changes in national income due to inflation. The real GNP takes nominal GNP measured in current prices and adjusts for any changes in price level for goods and services included in the calculation of GNP.