Loading the player...
A:

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 in a country. It represents the monetary value of all goods and services produced within a nation's geographic borders over a specified period of time. GDP is often used to indicate the heath of a nation’s economy. Investors use this figure to make decisions about investment in a particular nation, while governments use it for drafting policies. (See related: The GDP And Its Importance.)

GNP measures the levels of production of all the citizens or corporations from a particular country working or producing in any country. For example, the American GNP measures and includes 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 output. Therefore, it includes 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, the GNP of a country can be either higher or lower than its GDP. It 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.

 

RELATED FAQS
  1. What insights are economists trying to capture with GNP?

    Learn how, despite its disfavor as a primary economic indicator, GNP provides special insight into the value of production ... Read Answer >>
  2. What does GNP say about the balance of trade?

    Learn about the interaction of GNP and the balance of trade. Find out how GNP is structured and the role that the balance ... Read Answer >>
  3. What does the rule of 70 indicate about a country's future economic growth?

    Find out more about the rule of 70, what it measures and what it indicates about a country's future economic growth rate. Read Answer >>
  4. What are the key economic indicators that are used to calculate gross national income ...

    Learn about the key economic indicators used to calculate gross national income. For most countries, there is no significant ... Read Answer >>
  5. How does gross domestic product (GDP) affect standard of living?

    Find out how gross domestic product is used to measure standard of living. Find out which alternative metrics rely on GDP ... Read Answer >>
Related Articles
  1. Investing

    How To Use Gross National Product As An Indicator

    Learn what the GNP truly represents, and how its misuse can manipulate the facts.
  2. Insights

    Deadly Flaws in Major Market Indicators

    These indicators give investors and experts some data to work with, but they're far from perfect.
  3. Trading

    Calculating the GDP Price Deflator

    The GDP price deflator adjusts gross domestic product by removing the effect of rising prices. It shows how much an economy’s GDP is really growing.
  4. Insights

    Why GDP Is Not an Accurate Measure of the Economy

    Is gross domestic product (GDP) an accurate measure of the strength or weakness of the U.S. economy?
  5. Investing

    Something Gross in GDP

    GDP is used to gauge the strength of the economy, but what is it actually measuring?
  6. Insights

    What The National Debt Means To You

    The U.S. deficit seems to grow every year. But how does it actually affect you?
  7. Trading

    The Delicate Dance of Inflation and GDP

    Investors must understand inflation and gross domestic product, or GDP, well enough to make decisions without becoming buried in data.
  8. Insights

    The 6 Fastest-Growing Economies

    A look at the economic growth in several developing countries.
  9. Insights

    Why Today's "Recession" Tops The Great Depression

    The financial, labor and economic statistics show the current recession is worse than most people think.
RELATED TERMS
  1. Gross National Product - GNP

    Gross national product (GNP) is an economic statistic that includes ...
  2. Gross National Product (GNP) Deflator

    An economic metric that accounts for the effects of inflation ...
  3. Okun's Law

    The relationship between an economy's unemployment rate and its ...
  4. Net Foreign Factor Income (NFFI)

    The difference between a nation’s gross national product (GNP) ...
  5. Gross National Income (GNI)

    Gross national income is the sum of a nation's gross domestic ...
  6. Net National Product - NNP

    The monetary value of finished goods and services produced by ...
Hot Definitions
  1. Gross Domestic Product - GDP

    GDP is the monetary value of all the finished goods and services produced within a country's borders in a specific time period, ...
  2. Debt/Equity Ratio

    The D/E ratio indicates how much debt a company is using to finance its assets relative to the value of shareholders’ equity.
  3. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange.
  4. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
  5. Return On Equity - ROE

    The amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability ...
  6. Bond

    A bond is a fixed income investment in which an investor loans money to an entity (corporate or governmental) that borrows ...
Trading Center