What is Gross National Income (GNI)?
Gross national income is an alternative method of calculating Gross National Product. GNI is also related to Gross Domestic Product. GNI is the sum of a nation's gross domestic product and the net income it receives from overseas.
- Gross National Income is conceptually equivalent to Gross National Product, but it is calculated using incomes instead of output.
- GNI can also be calculated by converting from Gross Domestic Product by adjusting for residents’ foreign income.
- Countries involved with a large amount of foreign direct investment, foreign corporations, or foreign aid will show a large difference between GNI and GDP.
Gross National Income (GNI)
Explaining Gross National Income (GNI)
Like Gross National Product (GNP), gross national income (GNI) is a measure of a country's income. But GNP is calculated based on output rather than income. In practice there are slight discrepancies in measurement between the two, and GNI has come to be preferred to GNP by organizations such as the World Bank.
GNI is also similar to Gross Domestic Product (GDP) However, GNI includes net income received from abroad, while GDP only counts income received from domestic sources.
To calculate GNI, compensation paid to resident employees by foreign firms and income from overseas property owned by residents is added to GDP, while compensation paid by resident firms to overseas employees and income generated by foreign owners of domestic property are subtracted. Product and import taxes that are not already accounted for in GDP are also added to GNI, while subsidies are subtracted. Residence, rather than citizenship, is the criterion for determining nationality in GNI calculations, so long as the residents spend their income within the country.
Discrepancies Between GDP and GNI
For most nations there is little difference between GDP and GNI, since the difference between income received by the country versus payments made to the rest of the world tends not to be significant. For instance, the U.S.'s GNI was only about 1.5% higher than its GDP in 2016, according to the World Bank.
For some countries, however, the difference is significant: GNI can be much higher than GDP if a country receives a large amount of foreign aid, as is the case with East Timor. It can be much lower if foreigners control a large proportion of a country's production, as is the case with Ireland, a low-tax jurisdiction where the European subsidiaries of several multinational companies (nominally) reside.
Converting GDP to GNI
To convert a nation’s GDP to GNI, three terms need to be added to the former: 1) net compensation receipts (foreign income paid to resident employees), 2) net property income receivable (foreign income paid to resident property owners and investors) and 3) net taxes (minus subsidies) receivable on production and imports. Let's use Canada's 2010 GDP and GNI numbers to understand the reconciliation between these two measures of economic output:
- GDP in 2010 = $1,624.6 million
- Net compensation receipts = $0
- Net property income receivable = –$28.2 million
- Net taxes = $0
- GNI = $1,624.6 – 28.2 = $1,596.4 million