What is Gross National Product (GNP)?
Gross national product (GNP) is an estimate of total value of all the final products and services turned out 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.
- GNP measures the output of a country's residents regardless of the location of the actual underlying economic activity.
- Income from overseas investments by a country's residents counts in GNP, and foreign investment within a country's borders does not. This is in contrast to GDP which measures economic output and income based on the location rather than nationality.
- GNP and GDP can have different values, and a large difference between a country's GNP and GDP can suggest a great deal of integration into the global economy.
Gross National Product
Understanding Gross National Product
GNP measures the total monetary value of the 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 goods and services.
The U.S. used GNP until 1991 as its main measure of economic activity. After that point, it started to use GDP in its place for two main reasons. First, because GDP corresponds more closely to other U.S. economic data of interest to policy makers, such as employment and industrial production which like GDP measure activity in the boundaries of the U.S. and ignore nationalities. Secondly, the switch to GDP was to facilitate cross-country comparisons because most other countries at the time primarily used GDP.
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 goods for the rest of the world and revert earned income to domestic residents. For example, there are a number of foreign companies that produce goods 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.
Calculating both GNP and GDP can produce different results in terms of total output. For example, in 2017, the U.S. estimated its GDP $19.39 trillion, while its GNP was estimated at $19.61 trillion. 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 becoming more engaged in international trade, production or financial operations. The larger the difference between a country's GNP and GDP, the greater the degree of incomes and investment activity in that country involve transnational activities such as foreign direct investment one way or another.