What Is Gross National Income (GNI)?
GNI is the total amount of money earned by a nation's people and businesses. It is used to measure and track a nation's wealth from year to year. The number includes the nation's gross domestic product plus the income it receives from overseas sources.
GNI is an alternative to gross domestic product (GDP) as a means of measuring and tracking a nation's wealth and is considered a more accurate indicator for some nations.
GNI calculates the total income earned by a nation's people and businesses, including investment income, regardless of where it was earned. It also covers money received from abroad such as foreign investment and economic development aid.
The more widely known GDP is an estimate of the total value of all goods and services produced within a nation for a set period, usually a year. Finally, there's gross national product (GNP), which is a broad measure of all economic activity.
- Gross national income is an alternative to gross national product as a measure of wealth. It calculates income instead of output.
- GNI can be calculated by adding income from foreign sources to gross domestic product.
- Nations that have substantial foreign direct investment, foreign corporate presence, or foreign aid will show a significant difference between GNI and GDP.
Gross National Income (GNI)
Residence, rather than citizenship, is the criterion for determining nationality in GNI calculations, as long as the residents spend their income within the country.
GNI has come to be preferred to GDP by organizations such as the World Bank. It also is used by the European Union to calculate the contributions of member nations.
The U.S. Bureau of Economic Affairs (BEA) tracks the GDP to measure the health of the U.S. economy from year to year. The two numbers are not significantly different.
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 is subtracted.
GNI is preferred to GDP by the World Bank. It is used by the European Union to calculate the contributions of member nations.
Product and import taxes that are not already accounted for in GDP are also added to GNI, while subsidies are subtracted.
The Gap Between GDP and GNI
For many 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 does not tend to be significant.
For instance, the U.S. GNI for 2018 was about 20.7 trillion, according to the World Bank. The GDP in that same year was $20.5 trillion, according to the U.S. Bureau of Economic Affairs.
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. But 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 and U.S. subsidiaries of a number of multinational companies nominally reside.
GDP Vs. GNI Vs. GNP
Of the three measures, GNP is the least used, possibly because it might be deceptive. For instance, if a nation's wealthiest citizens routinely move their money offshore, counting that money would inflate the nation's apparent wealth.
In fact, GNI may now be the most accurate reflection of national wealth given today's mobile population and global commerce.
- GDP is the total market value of all finished goods and services produced within a country in a set time period.
- GNI is the total income received by the country from its residents and businesses regardless of whether they are located in the country or abroad.
- GNP includes the income of all of a country's residents and businesses whether it flows back to the country or is spent abroad. It also adds subsidies and taxes from foreign sources.
Converting GDP to GNI
To convert a nation’s GDP to GNI, three terms need to be added to the former: 1) Foreign income paid to resident employees), 2) Foreign income paid to residential property owners and investors, and 3) net taxes minus subsidies receivable on production and imports.